When couples think about dividing finances during divorce, the family home, savings and bank accounts often come to mind first. Pensions are easy to overlook, yet they can represent one of the most valuable assets built up during a marriage. In some cases, pension savings can even be worth more than the family home.
So, how are pensions treated in a divorce settlement? The answer depends on each couple's circumstances, including the value of the pensions, other assets, financial needs, and the arrangements reached between both parties. Experienced family law solicitors in Essex can help you understand the options.
Are pensions considered during divorce?
Yes. Private and workplace pensions generally need to be considered when making financial arrangements after divorce. A pension is not automatically divided equally, and the aim is not simply to split every asset down the middle.
The wider financial picture is considered, including property, savings, investments, income, debts, future needs and the needs of any children. In our experience, pensions are usually considered alongside the family home and other assets, with the focus on a fair overall outcome rather than an automatic 50/50 split.
How is a pension valued?
Before deciding how to deal with pensions, their value must be established. A pension provider can provide a Cash Equivalent Transfer Value (CETV) for divorce purposes. This indicates the value of the pension rights and helps both parties understand the assets involved.
However, comparing a pension directly with a house or savings account is not always straightforward. A pension may not be accessible for many years, and the eventual income can depend on the type of pension and other factors. A CETV can also understate the real value of some pensions, particularly defined benefit (final salary) and public sector schemes. Where significant pensions are involved, a report from a Pension on Divorce Expert (PODE), usually an actuary, can show how to divide them fairly.
The State Pension is treated differently. The basic State Pension cannot be shared, and the new State Pension generally cannot be shared either, apart from any protected payment element. It is still relevant when looking at each person's future income.
What are the options for dividing pensions?
There are three main approaches to dealing with pensions during divorce.
Pension sharing
A pension sharing order transfers a specified percentage of one person's pension rights to the other person. The recipient receives pension rights in their own name, creating greater financial separation between the former partners. This option can be useful where both parties need their own pension provision for the future.
Pension offsetting
Pension offsetting allows one person to retain their pension while the other receives a greater share of another asset, such as the family home.
For example, one spouse could retain a larger pension while the other receives more of the property equity.
Pension attachment or earmarking
Under an attachment or earmarking arrangement, the former spouse receives part of a pension benefit when the pension comes into payment. Unlike pension sharing, ownership of the pension rights does not transfer to the other person.
These differences make professional advice particularly important before an agreement is finalised.
Why pension advice matters during divorce
A pension is designed to provide financial security later in life, so a decision made during divorce can have long-term consequences. A settlement that looks equal on paper does not necessarily produce equal financial security in retirement.
Once an agreement has been reached, it is also important to formalise the financial arrangements correctly. Where the parties agree how to divide their finances, a consent order is generally used to make the agreement legally binding.
Getting the balance right
Pensions deserve the same careful attention as the family home, savings and other financial assets during divorce. No universal formula exists for dividing pension rights, and the best solution depends on the couple's wider financial circumstances and future needs.
Understanding the value of each pension and the available options early can help both parties make informed decisions and work towards a fair financial settlement.
Family law advice from Pellys Solicitors
Pellys Solicitors provides family law advice covering divorce and dissolution proceedings, separation agreements, financial proceedings, children's issues, inheritance disputes, cohabitation and pre-marriage agreements, injunctions and Trusts of Land disputes.
Our family law team gives clear, practical guidance based on each client's circumstances, from an initial discussion through to full consultation and instruction.
If you need advice about pensions, property or other financial issues during divorce, contact Pellys Solicitors for confidential guidance on your options and the appropriate way forward.
