A common divorce myth is that pensions aren’t shared, they stay with the person who has the pension. This article explains a spouse’s entitlement to a partner’s pension on divorce.
This article is part of a series of articles that aim to debunk the top 10 myths and misconceptions around divorce and finances that we have come across with our clients.
What happens to your pension on divorce?
Your pensions, alongside any other assets you have an interest in and income you receive, are potentially shareable as part of a financial settlement on divorce. Given that your pensions may not yet be in payment, they can sometimes be overlooked. Pensions can be considered both a capital asset (noting any tax-free lump sum you may be able to draw) and a future income source, all of which can make them extremely valuable.
Sharing a pension already in payment
Even if your pension is already in payment, it is still potentially shareable. In these cases, additional care is needed and consideration should be had to the possible effects of a pension sharing order on any income you are currently receiving. There is a risk that you may end up owing money to your pension provider for any period of overpayment.
When a pension is built up prior to the relationship
Often, some or all of a pension has been built up prior to the relationship or after you and your partner separate – this is the “non-matrimonial” element – and questions can sometimes arise as to whether it is therefore right for that part(s) to be shared.
Non-matrimonial property is usually only considered where yours and/or your spouse’s needs will not be met by sharing matrimonial property, which is built up from the time you and your partner begin living together. However, what constitutes “needs” is highly subjective. In the majority of cases, there may not be sufficient to meet needs. In some cases where pensions are valued in the millions, it can still sometimes be short of what a couple require to meet their retirement needs.
Offsetting the value of your pension on divorce
Whilst the value of pensions should be considered in a financial settlement, in some cases, it is possible to offset all or part of the value against other capital so that there is a reduced or no pension sharing order made. However, the value of pension and capital are not easily comparable and usually requires the advice of a pension expert; offsetting is rarely ever an advisable approach.
Seeking advice
All cases are fact-specific and pensions can be a complex area, often requiring the involvement of pension experts. To ensure you understand the full range of possible outcomes in relation to your pensions and it is important to take independent legal advice from a specialist family law solicitor early on; our team are available to guide you through this process.
To see the full series of our Top 10 divorce finance myths, please click here.