Divorce or dissolution: how we can help with your pension

Whether you’re thinking about starting, or are midway through, a divorce or dissolution – it can be a confusing and distressing time. There are lots of things to think about, and pensions might be the last thing on your mind.

 

However, your pension(s) could be your most valuable assets. So it’s important to take them into account when deciding on how your money and property will be shared.

Agreeing how to separate your finances

When you divorce or end a civil partnership, you and your ex-partner need to agree how to separate your finances. The rules are different, depending on whether or not you were married or in a civil partnership:

If you’re married or in a civil partnership and divorce or dissolve your civil partnership

You might be entitled to some, or all, of your partner’s pension. This will depend on what’s agreed and/or ordered by the court.

If you’re married or in a civil partnership and separate

If you separate without legally divorcing or dissolving your civil partnership, you wouldn’t be able to formally share your partner’s pension.

However, you might still be entitled to a spouse’s pension or lump sum when they die. There’s more information on this below.

If you’re not married or in civil partnership, and separate from your partner

In this situation, neither party would be automatically entitled to a share of the other’s pension.

Couples who have lived together might be referred to as being in a ‘common law marriage’ or ‘co-habiting’. Many couples believe that this gives them the same legal protection as a married couple or civil partnership. While this isn’t true for most of the UK, there can be some circumstances in Scotland where they can have the same legal protection.

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Your options

If you’re married or in a civil partnership and you decide to divorce, or dissolve your partnership, the court should take any pension rights into account.

In England, Wales and Northern Ireland, this would normally mean the total value of all pension rights, regardless of when they were built up.

In Scotland, the value of the pensions built up during the marriage or civil partnership are taken into account. This means that anything built up before the marriage or civil partnership, or built up since ‘the date of separation’, doesn’t normally count.

There are three different ways of dealing with personal or workplace pensions on divorce or dissolutions:

Dealing with pensions on divorce or dissolutions
Option
What is it

Pensions offsetting

The value of any pensions is offset against other assets.

For example, one person might get a bigger share of the family home in return for the other keeping their pension.

This can offer a simple, clean break which doesn’t interfere with existing pensions.

Pensions sharing

A percentage share of one person’s pensions is transferred to the other.

 

It can be transferred into a pension in their name (either a new or existing pension) or they might be able to join the scheme the pension has come from. It will depend on the pension scheme rules as to which method they allow.

This means they own that share in their own right and can manage it as they wish.

This option also offers a clean break, but bear in mind that you can’t share any life cover or death benefits.

Pension earmarking/attachment orders

One partner agrees to pay a portion of their pension to their ex-partner when it starts being paid to them.

Known as ‘attachment order’s in the UK, you can get some of the pension income, the lump sum or both. But you can’t get pension payments before your ex-partner has started taking their pension.

Known as ‘pension earmarking’ in Scotland, where you can get some of the lump sum only.

While this might keep things simpler to arrange as part of the divorce, it doesn’t offer a clean break. This is because the partner who owns the pension still controls when and how it’s used at retirement.

The options for dealing with State Pension are different to the above and depend on the date you reach State Pension age.

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The divorce process

You can usually avoid going to court hearings to sort out your finances if you and your ex-partner can agree how to split the money and property.

If you can reach an agreement between you, for this to be legally binding you would need to apply to the Court.

In England, Wales and Northern Ireland, this is known as a ‘Consent Order’.

In Scotland, it’s known as a ‘Qualifying Agreement’.

If you can’t agree on everything, you can ask a court to make a ‘financial order’. 

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Broadly speaking, the process involving pensions looks like this:

  1. Get a solicitor
  2. Work out assets
  3. Get a valuation for all the pensions (including State Pension)
  4. Assess the pension options
  5. Go to court for the pension order
  6. Implement the pension order
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Looking for us? Now, we’re MoneyHelper

MoneyHelper is the new, easy way to get clear, free,
impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

Continue to website
Looking for us? Now, we’re MoneyHelper

MoneyHelper is the new, easy way to get clear, free,
impartial help for all your money and pension choices.
Whatever your circumstances or plans, move forward with MoneyHelper.

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