What Happens to Your Pension When you Divorce?
If you have been paying into a pension for many years you may think your pension is safe from a financial claim in divorce proceedings as it is in your name and untouchable until retirement. In this article our family law solicitors explain the types of court orders that can be made over pensions and what you can do about your pension on divorce.
Online and London Family Law Solicitors
Divorce and pensions
If you are getting divorced, a common question is whether you need to disclose the fact that you have a pension when negotiating your financial settlement, attending family mediation sessions or in the divorce financial proceedings.
In all these scenarios, you are under a duty to provide full and frank financial disclosure and that duty includes disclosure of all your pensions, even though:
- The pension is in your name or
- You started the pension before your marriage or
- The pension contributions came out of your salary or
- Your spouse does not know about the pension
Ignoring pensions in divorce financial settlements
Although pensions have to be disclosed you can try to argue that the value of your pension should be ignored in the overall financial settlement because it is not a ‘family asset’. There are many reasons why you might try to argue this, such as:
- You signed a prenuptial agreement or postnuptial agreement and the agreement said your pension would be ignored or
- You contributed to your pension before your marriage and your marriage only lasted a short period of time and you don’t have children together
Can you ignore a pension if it is in payment?
Some assume that if a pension is in payment, it isn’t really an asset as it is an income source. However, pension administrators can place a value on a pension in payment and the court can either share the pension (by making a pension sharing order) or share the pension income ( by making a spousal maintenance order). You therefore can't ignore a pension just because it is in payment.
Can you ignore police and service pensions?
Some types of pension, such as police, fire service, ambulance service, NHS and army, are known for rewarding service but if you separate and get divorced all these types of pension are relevant. That’s the case whether it is an NHS, civil service, private pension, SIPP, or final salary or defined benefits company pension scheme.
How do you value a pension on divorce?
Each year you should receive an annual statement for your pension funds. The statement should give projected figures for when you come to retire as well as a transfer value for if you were to choose to move the funds to a new pension provider.
When you are getting divorced you can ask the pension administrator for a cash equivalent transfer value (CETV) of your pension. This is similar to the transfer value.
The transfer value is just one way to value a pension and it isn’t always the best way, depending on your objectives.
- You have a private pension with a CETV of £200,000
- Your wife has a company pension with a CETV of £200,000
On the face of things, the pension values are the same. The logical thing to do appears to be that you should each keep your own pension. However, a pension expert may value your pension at £200,000 and your wife's pension at £400,000 because her pension is a final salary pension. Therefore, the pension benefits and income she will get from her pension will be a lot higher than your private pension.
With a combined pension pot of £600,000, you could argue that you need a share of your wife's pension (£100,00 so a 25% pension sharing order) or a greater share of other family assets to compensate you for the fact that your wife is retaining all her pension.
It is best to not assume that a CETV is the correct value of your pension and to get legal advice on the pension value and your best pension options on divorce.
Pension orders on divorce
There are a number of ways that pension assets can be shared in a financial settlement where pensions are considered relevant. The two main options are:
- A pension sharing order – you or your spouse gets a share of the other spouse’s pension. The share becomes your pension fund – it isn’t ready cash unless your age and the pension rules allow you to draw down on the pension. Once the pension sharing order is made any further contributions you make to the pension benefit you alone as the pension has been split. The court can make a pension sharing order for any percentage – it doesn’t have to be an equal split.
- Pension offsetting – the value of a pension fund is offset against other assets, such as the family home or business.
What happens to your pension on divorce
What happens to your pension on divorce will depend on a number of factors, such as:
- Your age and that of your husband or wife
- The length of your marriage and the time spent living together before marriage
- Your needs and those of your spouse
- Whether you have other assets that can be used to offset the pension value
- Whether you are able to reach an agreement through family solicitors, in mediation or a judge makes a decision in financial proceedings
A family law solicitor can give you a better idea of what will happen to your pension on divorce when they have a better understanding of your personal and financial circumstances and, importantly, once the true value of your pension or the pension of your husband or wife has been ascertained.
Online and London Family Law Solicitors