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Pension Sharing on Divorce

Pension Sharing on Divorce
Published:  25 Feb at 9 AM
If you are going through a divorce and you and your ex-spouse are looking at dividing up your assets, the Court is required to take your pension rights into account. Through the Court, a divorcing couple can choose to balance the pension rights against another asset, such as the matrimonial home (this is known as Pension Offsetting) or arrange that when one party's pension eventually comes into payment, a portion of it will be paid to the other party (this is known as Pension Earmarking), or even split the pension at the time of the divorce to give both parties their own pension pot for the future (this is known as Pension Sharing).

Generally speaking, you will need to know what you and your former spouse's pensions are approximately worth. This will mean that both of you will need to ask your pension providers for valuations of your own pension pots. Your former spouse will not have any right to know what your pension value is without your consent. You will also need to understand the implications of each of the three methods of taking pension rights into account in a divorce settlement.

Be aware that transferring from a final salary or career average scheme to a money purchase scheme (or personal pension plan) carries a number of risks. You should seriously consider taking independent financial advice before sharing a pension so that you understand whether you are getting value for money.

The Court can issue a Court Order to occupational pension schemes (funded and unfunded, approved or unapproved), personal pension schemes, retiement annuity plans, and section 32 buy-out plan. The Court can consider pension plans that you and your former spouse are currently paying into, plans that you have frozen in the past and plans that are currently paying you an income. Arrangements that are outside the scope of the legislative provisions covering divorce are state benefits, Equivalent Pension Benefits earned between 1961 and 1975, and any pension rights a person is in receipt of by virtue of being a widow, widower, or dependant.

All the couple's assets are taken into account and pension benefits are offset against other assets (e.g. the matrimonial home). The party with the pension rights keeps them for him/herself and the other party is given the benefit of other assets, such as the right to live in the matrimonial home. It can be difficult to achieve a fair share of a couple's total assets by offsetting a pension pot against other assets. This may be because pension pot is by far the greater in value. Also pension values tend to fluctuate more than, say, property values. If it turns out to be difficult to achieve offsetting, one or other of the alternative bases is then likely to be used.

The Welfare Reform & Pensions Act 1999 gave powers to the Court to split pension rights between husband and wife on divorce. The basic concept is to separate the ex-spouse's benefit entitlement (as specified in the Court Order) from the pension scheme member's, so that there is a 'clean break'. A Pension Sharing Order is issued that creates a Pension Credit Member (the ex-spouse) and a Pension Debit Member (the member).

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