What happens to pensions when you divorce?

Pensions And Divorce – A pension can be a valuable asset (sometimes the most valuable asset) that has been built up during your time together.

Even though you may be some years away from an age where you can access pension funds, these count as assets, just like money you might have in a bank or savings account. Therefore, when you face the end of your marriage or civil partnership, it is important to include these in your conversations on how your ‘joint assets’ are to be shared.

How to value your pension

It’s important to get the correct up-to-date information about the value of your pensions, and unless you do, you won’t be able to provide the correct financial information that you need.

You will hear the term Cash Equivalent (CE) of your pension. This is the figure that your pension provider will produce when looking at the value of the fund. It is the amount that the pension provider would need to produce if the fund was being transferred from one fund to another. Some pension schemes provide the CE figure when producing their annual statements, but it may be necessary to contact your pension provider for the figure.  Unless the pension is in payment, the provider has to produce one CE calculation per year free of charge.

Sharing pensions

A pension pot is a term to describe the combined pensions of both parties and there are several ways you could look at dividing these including :

Pension Offsetting

This is where the value of any pension is offset against other assets. An example of this might be one person receives a larger share of the family home in return for the other being able to keep their pension. 

Pension Sharing

Another option is that you could share all, or a percentage of your pension with your ex-partner. This amount can be transferred into the other party’s name (into an existing or new pension scheme). This would allow the person receiving the pension to be able to control it and choose when and how to use it.

Pension earmarking/attachment orders

This option means that one partner can pay a portion of their pension income to the other partner when it begins to be paid.  This could be either part of the pension income or the lump sum. 

How to agree a fair split

A Family Mediator can help you and your ex-partner to agree on how to split your finances, including what happens to your pensions.

Family Mediators are highly experienced in helping you to reach agreement on financial issues relating to your divorce or separation, as well as parenting and property issues and are able to work through the options with you.

Family Mediation is also faster, cheaper, less stressful and also provides you with more control over any outcome than going through court to reach agreement.

At the end of mediation, the Family Mediator will document what you have agreed and will create a memorandum of understanding, documenting the decisions made.  This document can then be taken to a solicitor to be made into a legally binding court order which is based on what you agreed during mediation.  

If you cannot agree

If you cannot agree then you may be considering applying to court. It is important to note that before applying to court you will need to attend a Mediation Information and Assessment Meeting (MIAM)this provides you with an opportunity to find out if mediation could help in your case. In most cases mediation can help you reach agreement.

  If you have tried mediation but still been unable to reach an agreement your mediator will be able to issue you with a certificate to apply to court.

If you cannot agree during mediation on a fair way to split your pensions and other financial assets, then you can ask a court to make a financial order. The court will then decide how your assets will be split. This is not only stressful but also slower and more costly and gives you far less control over the outcome than trying to reach agreement through mediation.

Judges base their decision on many factors, such as how long you have been married, or been in a civil partnership, your age, ability to earn, your role in looking after the family ie. if you were the main earner or caring for the family etc. The judge will then decide on the fairest way to divide your assets taking account of your needs and the assets you have available to divide, which will include your pensions.

What happens if you’re not married, or in a civil partnership

If you are not married, or in a civil partnership when you separate then there is no automatic entitlement to a share of the other person’s pension as there is no legal protection for those who have been cohabiting together. However in Scotland there may be some circumstances where there is some legal protection and you can find out more here on the Citizen’s Advice for Scotland website.

Whilst the law cannot protect you it is possible to make different arrangements in mediation that can be written as a Deed of Separation which will set out all the terms you have agreed. A Deed of Separation is a statement of the agreements you have made and provides a record of your intentions for the sharing of your property, financial and child arrangements. It can be made into a legal document upon which you both rely to action your agreement.

It is also important to keep your expression of wish forms with any pension providers updated. This form tells the pension provider who you would like to receive your death benefits in the event your death and you may have included your ex-partner on these when you first started your pension.  It’s a good idea to make sure these are updated regularly to ensure your current wishes are considered in case the worst happens.

Here you can read more guidance and advice on the financial impact of divorce or separation.

Read more about how family mediation could help you, or book an appointment today with a family mediator to agree how you can fairly split your finances now you have agreed to divorce or separate.