It is helpful to think of your pensions as your future security; savings you have built up over the years to provide for you both in your retirement which you had been planning to spend together. One person may have been able to build up a bigger pension pot as they concentrated on their career, while the other person sacrificed earning and saving opportunities to focus on caring responsibilities.
‘When we talk about pensions on divorce or dissolution and how to divide them, it is not always as straightforward as splitting a bank account,’ explains
Samantha Hulse, Partner and Head of the Family Law team with QualitySolicitors Parkinson Wright. ‘Because you and your spouse built your lives together, the law recognises that these pensions are often considered a joint asset, so something you both have a stake in.’
A dispute can arise if the person with the larger pension pot does not see this as a shared asset.
Am I entitled to a share of my spouse’s pension?
You might be wondering whether you are even entitled to a share of your spouse’s pension, but generally the answer is ‘yes’. Pensions built up during the marriage are usually considered marital property, regardless of whose name the pension is in.
It is important to understand that this does not automatically mean there will be a 50:50 split. The courts will consider all of the relevant factors before deciding how those pension assets should be fairly divided, such as:
- the length of the marriage;
- respective ages;
- respective financial needs;
- contributions to the family;
- income and future earning capacity; and
- the value and type of pension pots on both sides.
A particular consideration for the court would be whether there is a significant disparity in your respective pension pots, and if the party who has less in the pot has the ability to build theirs up or not. For instance, if you are still in your early 40’s but gave up work to raise the children, you may have had few opportunities to make pension contributions while your spouse flourished in their career and maxed out their pension contributions. A court would explore whether you still had enough time to get back into gainful employment and build up your pensions to an adequate amount before you reach pensionable age. If it decided you did not have that ability, it could award you a share of your spouse’s pension pot to try and achieve some sort of fair and reasonable parity.
What specific pensions information do I need to give to my solicitor?
There are different types of pensions and your solicitor will need to consider all the schemes you each have in place. For each pension scheme, you can start by providing the following:
- pension scheme provider’s name and contact details;
- policy or membership number;
- the type of pension scheme – e.g. personal pension, occupational pension or SIPP?
- the cash equivalent transfer value (known as CETV or CE value);
- the most recent annual pension statement - you should have this for your pension arrangements and it may contain some if not all of the information above;
- start date of the pension; and
- accurate details of when your marriage began and ended.
If you do not have an annual statement, there is a specific form that your solicitor can complete and send to the pension company for the relevant details.
Once your solicitor has gone through all the information on the pensions you are able to provide, they will advise you about whether further details or documents are needed. For example, the exact value of a defined benefit pension (e.g. NHS, Police, Fire Service etc) is sometimes not reflected in the cash equivalent transfer value because those pensions depend on things like your salary and length of service, not just how much you put in. In such a situation, you might be advised to ask a pensions expert (like an actuary) to provide an in-depth report on the pension plan and advise on its actual value.
We lived together before marriage, does that count?
Cohabitation before marriage may be relevant but it would have to be seamless cohabitation, in essence where you lived together without any breaks and that led to the marriage. The court has a wide discretion in achieving fairness, especially in a ‘needs case’ which is where all assets may have to be put into the pot, whether accrued during the marriage or civil partnership, or otherwise, to meet the reasonable needs of both parties.
The approach tends to be different if assets are abundant and plentiful, where the court would look at sharing assets out, rather than doing whatever is necessary to meet basic needs. In such a scenario, the party with the large pension pot could argue that only the value of the pension from the date of marriage to separation should be considered; on the other side of the fence, it would be argued that contributions made during the seamless cohabitation before marriage should also be factored in.
How does the court divide a pension?
There are three main ways the court can divide a pension on divorce or dissolution, to achieve a financial settlement. These are:
- A pension sharing order – often this is the preferred method as it can help achieve a clean break so you are not financially tied to your former spouse. It is essentially an order telling the pension provider to carve out a portion of one spouse’s pension arrangement, and transfer that to the other spouse so that you have your own separate pension pot. Some providers offer the option to have a separate pension plan with them, or you can choose to invest your share with a different pension provider.
- A pension attachment order - this is less common as it keeps parties tied to one another. The pension would fully remain in one spouse’s name and the provider would be told to pay a portion of the pension benefits (income and lump sum) to the other spouse in retirement. There would be no separate pension plan for the receiving spouse and a lot would still depend on the other party (i.e. when they retire, if they die before retirement etc.) A clean break would not be achieved.
- Pension off-setting - this approach achieves a clean break without directly sharing the pension if there are sufficient other assets. Once a value is agreed for the relevant pension(s), you can decide to off-set your portion against other available assets. For instance, if your spouse had a pension worth £200,000 and it was settled that you had a claim for 50% of it, but you preferred to keep the matrimonial home instead of having a pension share, you could offer that your spouse retains their pension in exchange for the property being signed over to your sole name. This would only work if your spouse’s settled share in the property is similar to your pension claim. This would help to achieve a clean break. However, this is not a like for like comparison as a pension is not considered the same value as cash in a bank account or the value of a property (i.e. £100,000 of pension does not equate to £100,000 of cash). Often the offset figure is slightly less than what you would receive from a pension share. Your Solicitor will be able to advise you further.
How we can help
When going through a divorce or dissolution proceedings, settling the finances is always the most stressful element. Pensions are complex arrangements by their nature and it is important that you seek advice from one of our experienced family law specialists at the earliest opportunity to guide you in the best direction.
For further information, please contact Samantha Hulse or a member of the family law team on 01905 721600 or via email worcester@parkinsonwright.co.uk
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.