Understanding divorce and pensions

This content was reviewed and approved by our in-house advisory panel.

The information on this page should not be considered as financial advice. If you are unsure what’s right for you, please make sure you speak to a financial adviser.

If you’re getting divorced, you’re legally required to include pensions in any settlement with your partner.

Understanding divorce and pensions, and your options for splitting the money, is important when the time comes to part ways.

How does divorce affect my pension?

Pensions usually count towards the money, assets and property you own with your ex-partner. While the State Pension is not included, your other pensions are seen as a joint asset and are normally considered in any divorce or dissolution settlement.

After the family home, your pension pot is often your biggest financial asset. When you get divorced, these assets and pensions will be reviewed and divided between you and your former partner.

If you have several different types of pensions, you can work out the total value of your pot by asking each provider for a ‘Cash Equivalent Transfer Value’. This enables you to add your pensions to your other significant assets, such as your home, when deciding how to divide your wealth.

How will my pension be split when I get divorced?

Responsibility for splitting your pensions normally falls on you. Pensions aren’t always shared equally, and dividing the money between both parties can be difficult.

Divorce and pensions work differently from other assets you own, and you may have to wait years for the money, and also pay Income Tax on it. If you live in Scotland, only pensions built up while you were married or in a civil relationship are considered.

If you and your ex-partner can’t reach an agreement, a court may intervene and decide how your pension should be split. This may allow you to keep your pensions in full but split your property and other assets differently.

For example, you may get to keep all your pensions while your ex-partner keeps the house if the value is similar, known as pension offsetting. However, sometimes couples can’t agree on how a pension should be divided, and a court may intervene to find a resolution.

Some common divorce settlement choices include:

• Pension Sharing Order (PSO): All or part of a pension is transferred to your ex-partner.
• Pension Attachment or Earmarking Order: The pension remains in your name, but your ex-partner gets a share of the money when it pays out.
• Pension Offsetting: You let your spouse or partner take more of another asset like a shared property while you keep your pension.
• Deferred Pension Sharing: You and your ex-partner delay sharing the pension until a later date, such as when the non-pension-holder retires.
• Deferred Lump Sum: You make a lump sum payment to your ex-partner when they retire.
• Individual Agreement: You and your ex-partner decide how to divide your pension pot. 

If you’re unsure how divorce and pensions work, seeking professional retirement and pension advice can improve your understanding and guide you through an emotionally challenging time.

What impacts the way pensions are split in divorce?

Pensions are viewed as a joint asset and are usually divided equally when you divorce. However, this is not always the case, and some divorces may involve a different settlement depending on several factors, such as:

How are final salary pensions divided between divorced couples?

Also known as defined benefit pensions, final salary pensions pay a guaranteed pension from the day you retire until you pass away. Often found in the public sector, the amount you’ll receive is based on several factors, including your salary when your employment ended and the length of time you paid into an employer’s pension scheme.

When sharing a final salary pension, the pension scheme can potentially reduce your pension and either set up your ex-spouse as a pension credit member of the scheme, or allow them to transfer their pension credit to another pension scheme of their choice. You should first obtain a cash equivalent transfer value (CETV) for the pension plus all other pensions held by you or your ex-partner. This can also allow you to:

• Transfer the final salary pension into a money purchase pension pot and divide it between you and your ex-partner.
  
• Divide the income from your pensions when they start paying out.

Given the value of pensions, divorcing couples will benefit from both financial and legal advice when dividing up pensions. Working alongside your legal advisers, pension experts and scheme actuaries can do the calculations to ensure a fair share of the money, whether that’s achieving equal retirement income or capital and asset value. Where required, a Pension Sharing Order can then be made by the court so that your pensions are shared between you and your ex-partner as directed as part of a legal settlement.

What about State Pensions and divorce?

The new State Pension came into effect on 06 April 2016 and applies to anyone reaching State Pension age after that date. Unlike the old system, the new State Pension cannot be divided if a marriage or civil partnership ends.

However, if you have a ‘protected payment’ – an additional amount paid because your entitlement under the old system was higher – a court may order this to be shared between you and your ex-partner.

How should pension money be divided in divorce or dissolution?

You and your ex-partner must agree on the best way to divide your pension pot. The rules for calculating pensions and divorce differ depending on whether you were married or in a civil partnership. This includes:

1. If you’re married or in a civil partnership

If you divorce your spouse or dissolve your civil partnership, you could be entitled to some or all of your partner’s pension. What you get depends on what you both agree to or what the court orders.

2. If you’re married/in a civil partnership and separate

You won’t be entitled to your partner’s pension if you separate without legally divorcing or dissolving your civil partnership. However, you may still be entitled to your spouse’s pension or a lump sum when they pass away.

3. If you're neither married nor in a civil partnership and separate

Neither you nor your ex-partner is automatically entitled to a share of the other’s pension if you’re not married or in a civil partnership. In most parts of the UK, this also applies to couples who live or cohabit together. However, in Scotland, unmarried couples and those in civil partnerships could be entitled to the same legal protection when they separate.

What happens to my pension if I remarry?

The terms of your divorce settlement, agreed by you and your ex-partner or approved by the court, should list what happens if one of you remarries someone else.

Usually, when part of a pension has been transferred to an ex-partner under a Pension Sharing Order or from pension offsetting, the pension arrangement won’t be affected if either of you remarries. However, a Pension Attachment or Earmarking Order will usually stop at the point of remarrying another person.

Splitting up and need pension advice?

If you’re going through a divorce or dissolution, our pension specialists will explain your pension options and help you plan for the next stage of life. Request a call back today.