Guidance on Pension Sharing During a Divorce

Pensions are often seen as a bit of a mystery, with many people not realising their true value, but in reality, your pension is probably one of your most valuable assets.

During a divorce or the dissolution of a civil partnership, the value of your pension assets will be taken into account as part of the financial settlement process - our family law solicitors in Sheffield, Chesterfield and Mansfield can advise you further on this.

In many cases the total pension ‘pot’ of the parties can be worth more than the family home. It can be the largest asset a couple owns. The Court has powers to apportion pension rights when parties divorce.

For those couples going through divorce, our divorce solicitors often find that clients just want to get the financial settlement over with and are focused on their immediate future living arrangements, which is of course understandable. This can often overrule the ability to think about the long-term future and whether or not they will have enough income for their retirement.  It is so important to get this right and not let any rash decisions now spoil your retirement years.

 

Key points on Pension Sharing During a Divorce

Pension sharing during a divorce ensures that pension assets are fairly divided between spouses. The three main options are offsetting, pension attachment orders, and pension sharing orders—the latter being the most common and offering a clean financial break. Accurate pension valuation and legal advice are essential to secure your financial future.

 

Getting Your Pension Assets Valued During a Divorce

At the start of the settlement process your entire pension assets will have to be identified and valued. If you have a pension fund, we will ask you to contact the pension administrators and obtain the Cash Equivalent Transfer Value (CETV or CEV) of the pension fund. The two different types of terminology may be used to describe what is the valuation of the accrued pension benefits and the figure produced will show the value of the pension fund at that point in time were it to be transferred to another fund.

 

How Are The Pension Valuations Taken Into Consideration?

The value of a pension fund is taken into account in the overall evaluation of the assets to be divided. Where there are pension assets, the CETV or CEV of the pensions will be required for every pension fund to compare each party’s accrued pension provision. Pensions are complex and depending on the CETV or type of scheme (such as final salary scheme) we are likely to recommend that an actuarial report prepared by a Pensions On Divorce Expert (PODE) should be obtained to provide expert evidence on the different ways to deal with and distribute pensions.

 

3 Pension Sharing Options to Consider

There are several options available when it comes to considering pensions:

1. Offsetting the pension against other matrimonial assets
2. A pension sharing order
3. A pension attachment order (formerly known as earmarking)

(Note: There are slightly different rules for pension sharing orders in Scotland than there is in England and Wales)

 

Offsetting

This means that if one party keeps their pension intact, the other party has a balancing benefit from
other capital assets to provide a fair outcome. Pensions are treated in a different way to other capital assets such as savings and property. They cannot be compared against a capital asset on a £ for £ basis. A PODE can be asked to advise on the capitalisation value of a pension fund if it is to be offset against other capital assets.

Pension Sharing Order

The Family Court can make a pension sharing order. Part of one person’s pension is transferred to the other person. The recipient will then have pension funds which may be moved to another pension provider entirely, or to a new fund with the same pension provider. The latter is not always possible, and it depends on the pension fund rules.

A pension sharing order will set out what percentage of the pension CETV or CEV is to be transferred to the other party. That percentage will be used at the date of implementation and that percentage of the fund (no matter what the value on that date) will be transferred to the other party. This could be more or less than the value calculated using the CEV or CETV obtained, depending on if the pension
fund has increased or decreased in value since the date the CETV or CEV was obtained.

A pension sharing order allows a ‘clean break’ to take place once implemented.

Pension Attachment Order (Earmarking)

Pension Attachment Orders are less commonly used than pension sharing orders or offsetting
arrangements.

An attachment order is an instruction from the court which requires the trustees of a pension scheme to pay benefits directly to an ex-spouse/civil partner, rather than the member.

The order may be made against one or more of the following pension benefits:

• The pension commencement lump sum (also known as tax-free cash)
• The member's pension
• The spouse/civil partner's death-in-service lump sum

Attachment, which was introduced as 'earmarking' under the Pensions Act 1995, can be useful in that the spouse/civil partner can rely on an independent and trustworthy third party to make the payments, rather than an often-reluctant ex-partner, however there are also several drawbacks which mean that it is usually the least often used option.

The main drawbacks are:

• The order only comes into effect when benefits are taken, as this is the member's decision it can be delayed to suit them (even if they are just being difficult).

• Similarly, the member can choose the format of benefits, so if the order applies to the PCLS, the member can choose not to take it (unless specifically directed otherwise in the order),

• The order prevents a clean financial break, since the ex- spouse/civil partner must keep in touch, at least with the scheme trustees, to benefit.

• Any pension benefits will be taxed as belonging to the member. This is particularly onerous if the member is a higher rate taxpayer and the ex-spouse/civil partner is not.

• The order may lapse in the event of the member's death or on the remarriage of the ex-spouse/civil partner

• Earmarking orders are notoriously complicated to draft with many being unworkable.

 

The Importance of Seeking Pension Advice During a Divorce

We urge couples to make sure they seek independent legal and financial advice before any agreement is made because if you get this wrong, you could lose out in the future. 

 

We’re Here to Help at Banner Jones

If you're going through a divorce and unsure how your pension fits into the financial settlement, our experienced divorce solicitors in Sheffield, Chesterfield and Mansfield are here to help. Whether you need a quick informal chat or a full legal consultation, we’ll guide you through your options with clarity and care.

Request a Callback and speak to one of our friendly family law experts today.

 

 

FAQs about Pension Sharing During a Divorce

 

Is my husband entitled to half my pension in a divorce?

Not automatically. In England and Wales, pensions are considered part of the matrimonial assets and can be divided fairly—not necessarily equally—depending on the circumstances. The court will consider factors like the length of the marriage, each party’s financial needs, and contributions made. A pension sharing order may be used to divide the pension if appropriate. Our Family Law solicitors in Sheffield, Chesterfield and Mansfield will advise you on this.

 

Who pays pension sharing order fees for divorce?

This can be paid by either party or shared equally between you and is usually negotiated as part of the settlement or ordered by the court.

The cost of implementing a pension sharing order will vary depending on the pension provider. Some schemes charge an administration fee, and other’s do not charge a fee. The pension administrator will advise you of the charges.

Legal and actuarial (PODE) fees are usually paid separately by each party unless otherwise agreed.

 

How is a final salary pension split on divorce?

Final salary (defined benefit) pensions are valued using a Cash Equivalent Transfer Value (CETV), but this may not reflect the true value. An actuary or PODE is often needed to provide a more accurate valuation. The pension can then be split using a pension sharing order or offset against other assets. Specialist advice is essential due to the complexity of these schemes.

 

Is my ex-wife entitled to my state pension?

Your ex-wife may be entitled to a share of your additional state pension (formerly SERPS or S2P) through a pension sharing order. However, the basic State Pension cannot be shared. If you were married before 2016, she may also be able to claim a pension based on your National Insurance contributions, depending on her own record.

 

Can I refuse a pension sharing order?

You can contest a proposed pension sharing order during divorce negotiations or court proceedings, but ultimately the court has the power to impose one if it deems it necessary for a fair settlement. Refusing without valid grounds may not be successful, especially if the pension is a significant marital asset. It is best to seek advice from one of our Family Law Solicitors in Sheffield, Chesterfield or Mansfield.