Divorce or dissolution 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. But your pension(s) might 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.
What’s in this guide
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/in a civil partnership:
If you’re married or in a civil partnership and you 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 won’t be able to formally share your partner’s pension.
But 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 a civil partnership, and separate from your partner
In this situation, neither party is 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 ‘cohabiting’. Many couples believe 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.
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 ways of dealing with personal or workplace pensions on divorce or dissolutions:
| Option | What is it |
|---|---|
|
Pensions offsetting |
The value of any pensions is offset against other assets. This can offer a simple, clean break which doesn’t interfere with existing pensions. |
|
Pensions sharing |
All or a percentage share of person A’s pensions is transferred to person B.
It can be transferred into a pension in person B’s name (a new or existing pension) or person B might be able to join the scheme the pension has come from. The pension scheme rules will decide which method is allowed. This means person B has full control over that share and can choose when and how to use it. This option also offers a clean break, but bear in mind that you can’t share separate life cover and death benefits. |
|
Pension attachment/earmarking orders |
Person A agrees to pay a portion of their pension income to person B (their ex-partner) when it starts being paid to A. These are known as ‘attachment orders’ in most of the UK: person B can get some of the pension income, the lump sum or both. But person B can’t get pension payments before person A has started taking their pension. It’s 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 person A still controls when and how the pension is 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.
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’.
Broadly speaking, the process involving pensions looks like this:
- Get a solicitor
- Work out assets
- Get a valuation for all the pensions (including State Pension)
- Assess the pension options
- Go to court for the pension order
- Implement the pension order
Getting divorced and want to discuss your pensions options?
One of our pension specialists can guide you through your options during a divorce. They’ll talk to you about what you’ll need to think about, and where to get regulated advice if you need it.
