If you are going through a divorce, there are plenty of financial arrangements that need to be made. As your pension is likely to be one of your highest value assets, it is important to understand how it could potentially be divided between yourself and your former partner.
A pension earned during a marriage is considered to be a joint asset, which means that its value can be divided during divorce. However, this doesn’t mean you automatically have to share your pension. There are a number of different ways in which its value can be split, including the option not to split it at all if that is the fairest outcome for you.
How are pensions dealt with in court?
If you are willing to take your divorce to court, then the judge residing over your case will initially seek to achieve fairness. This tends to start with a 50/50 split of the matrimonial money or assets.
While this is a common starting point, it is often the case that couples do not equally contribute to the marriage and the actual settlement that you and your former partner will receive could depend on a number of other factors. Said factors may include the length of your marriage, the respective needs of each party and the needs of any children or dependants you have together.
How can pensions be divided during divorce?
Pension sharing works by sharing a portion of the pension pot at the time of separation. This creates a clean break, with the receiver’s funds generally being transferred out of the pension for their personal use however they wish. The partner losing the pension benefits will get a ‘pension debit’ while the partner gaining the pension benefits will get a ‘pension credit’.
Under offsetting, the value of a pension is offset against the other assets that are involved in the divorce process. This means that you will be able to hold on to your pension, but your former partner will then receive a greater share of any other assets in return (such as the family home). If there aren’t enough assets to offset the pension benefits, this option will not be possible.
Pension Attachment Orders
Otherwise referred to as ‘earmarking’, Pension Attachment Orders work by allowing the partner without the pension to receive either a lump sum or payments from their former partner’s pension at the point they start receiving their benefits.
This does not result in a clean break divorce because there is an ongoing connection until the receiving partner receives their share of the pension. Therefore, for people looking for a complete split from their partner, this usually is not the best option.
Put simply, your basic State Pension cannot be shared upon divorce. However, divorced couples are able to use their former partner’s National Insurance contributions to increase their basic State Pension, providing they do not remarry or enter a new civil partnership. This will not reduce the amount of State Pension the other person receives.
If you or your former partner have an Additional State Pension or a Protected Payment, it is also possible that a court could order this to be shared between you, depending on the circumstances.
What happens to pensions if you aren’t married?
A widespread belief is that, if you have lived together with your partner for a certain period of time, then you will be given the same rights under the principle of a ‘common law marriage’.
It should be noted that this is simply a myth and if you are not married you will not be required to divide your assets upon separation, unless you previously signed a cohabitation agreement with your former partner.
A cohabitation agreement is a document which allows a couple to set out how finances will be divided if you choose to separate. While the document is not legally binding, they can be taken into consideration if any disputes arise concerning the division of financial assets.
Settling pensions through mediation
The majority of separating couples are able to come to an agreement about pension sharing without having to seek the decision of a judge. Making a voluntary agreement regarding your financial settlement means that it will be up to you and your former partner to decide how your assets will be split – including how your pensions are treated. This may sound daunting but this can often be swiftly and fairly achieved through Alternative Dispute Methods such as mediation.
Instead of going to divorce court, you and your former partner will discuss your divorce financial matters and come up with solutions in a neutral, cooperative environment under the guidance and support of a trained mediator.
Get advice from expert divorce solicitors
If you are looking for help with managing your finances during divorce, then don’t hesitate to get in touch with our expert divorce finance solicitors. At Crisp & Co, we believe in keeping divorce simple and straightforward, helping you to reach a financial agreement with minimal fuss.