How are pensions split in divorce?
For most individuals, their pensions are often their most valuable asset and can be a cause for significant concern during a divorce, with many people wanting to protect their pension to secure their future
During the process of divorce, each couple has a responsibility to make arrangements for their finances, including how their pensions will be split. This often leads to disagreements between the involved parties, such as where one party looked after the home and children and consequently, has made a lower pension contribution than the spouse who was mainly responsible for earning the household income. Fortunately, there are options available to resolve these types of disagreements.
Here, we discuss the different pension splitting options available during divorce, including pension sharing, pension offsetting and pension earmarking. We explain how pensions are divided during divorce, including voluntary financial settlements, financial orders and where you will need a solicitor to assist in deciding how pensions are split during divorce.
What are the pension splitting options during divorce?
Pension sharing
Pension sharing involves one person dividing a percentage of their pension with their ex-spouse. This can either be put into a new pension scheme by the receiving spouse, or retained separately, within the original pension scheme.
The court often leans towards this type of pension splitting option where one spouse has no pension, or their pension is significantly lower.
The benefit of pension sharing is the ‘clean break’ it provides each party following divorce.
Pension offsetting
Pension offsetting is often used to allow one party to keep their pension and ‘offset’ its value in exchange for another asset of similar value. A typical example of pension offsetting is where one ex-spouse retains part, or all their pension in exchange for part, or all their interest the family home.
Pension earmarking
Pension earmarking is sometimes better known as a ‘pension attachment order’. This is where one party will pay their ex-spouse a lump sum or instalments once they have reached retirement age.
The court often prefers to avoid this type of pension splitting because it does not create an immediate ‘clean break’ between the parties following divorce and the receiving party may have to wait a number of years before they receive the pension the court has ‘earmarked’ for them.
How is the division of pensions decided during divorce?
When it comes to the division of pensions during a divorce, there are two different options available for spouses, depending on the circumstances of your case. These include:
Voluntary divorce financial settlement
In most divorce proceedings, divorcing couples are encouraged to seek a voluntary divorce financial settlement, such as deciding what will happen to pensions between themselves. This process is often achieved through private negotiations or mediation, where the involved persons will meet and negotiate to find a mutually agreed decision.
If the divorcing couple is able to decide on how their pensions and other assets will be split during divorce, the agreement is not automatically legally binding and will require the involved parties to apply to the court to seal their agreement, in the form of a consent order.
Divorce financial order issued by the court
If a divorcing couple is unable to come to an amicable voluntary agreement between themselves concerning their finances and pension, the court will be obliged to issue a divorce financial order based on certain circumstances, including:
- The welfare of involved children – children’s needs and welfare will be the first consideration of the court
- The financial needs, obligations, and responsibilities of each party
- The standard of living the parties enjoyed before the marriage breakdown
- The conduct of each party, if exceptional
- The income and earning capacity of each party
- The contributions of each party to the marriage
- The age of each party
- Any mental or physical disabilities a party may suffer
Do you need a solicitor for deciding how pensions are split in divorce?
Simply speaking, no, you do not need a solicitor when deciding how pensions are split in a divorce. Matters can be taken into your own hands. However, for the best chance of acquiring an outcome which suits you and your interests, seeking the advice and guidance of an experienced solicitor can prove to be invaluable.
A solicitor can guide you and your ex-spouse through alternative dispute resolution methods, such as private negotiation and mediation, and should you be unable to come to an amicable agreement, they can assist with court proceedings to obtain a legally binding solution.
Contact our divorce solicitor in Clapham, London
For an initial consultation with our divorce financial solicitor in London, please call 020 7622 2221, email enquiries@goodsellssolicitors.co.uk or complete our online enquiry form to request a call back.