Pensions and Divorce

1. How are pensions split in a divorce?

In England and Wales, pensions are treated as a matrimonial asset and must be considered within an overall financial settlement. The law provides several ways to divide pension arrangements. It is important to note that they are not always shared equally. There are three options for splitting pensions:

• Pension sharing: This is the most common, and it is where all or part of a pension is transferred to an ex-spouse. As you each own a separate part of the pension, you get a clean break from each other.
• Pension attachment or earmarking: This is where the pension stays in the same name, but the ex-spouse will get a share when it pays out. The partner who owns the pension will usually decide when it will start paying out, so this option does not offer a clean break from each other. With this option, if the owner of the pension dies before accessing the benefit, the attachment order for future income lapses, meaning the ex-spouse receives nothing unless death-in-service benefits or a specific death lump sum was included in the order. Also, if the recipient ex-spouse remarries, the order generally lapses automatically, terminating their right to future income from the pension arrangement.
• Pension offsetting: This is where you keep each pension in full, so you get a clean break, but divide your other money and property differently. For example, if you keep a large pension pot, your ex-spouse might keep the family home if it’s a similar value or other capital.

2. How Pensions differ from other assets in divorce

Simply put, pensions:

• Represent deferred future retirement income which cannot be accessed immediately for most divorcing couples. Therefore, they should not be compared directly with savings or property.
• Cannot be valued simply by looking at a current balance of the pension pot. The standard valuation method is the Cash Equivalent Value, known as (“CEV”). However, this may not reflect the true value of some schemes, especially defined benefit schemes, and the advice of a Pension Actuary may be necessary to ensure the asset is split fairly.
• Values depend on scheme rules, investment performance, inflation and retirement age. These factors make pensions less straightforward to compare directly with other matrimonial ‘cash’ assets.

3. Can my ex-partner make a claim for a share of my pension years after our divorce?

It depends! If a Court did not approve the terms of the financial settlement between you and your ex-spouse when you got divorced, and there is no court order, then yes, they could make a claim for some of your pension at a later date.

If a court did approve the financial settlement and there is a final court order, it is generally very difficult for an ex-spouse to unravel the terms and claim a share of your pension assets now.

4. What is a PODE report?

A PODE, or Pensions on Divorce Expert, report is an impartial document prepared by a specialist, usually an actuary or pension consultant, during divorce proceedings. The report can be used in negotiations and court proceedings to assist spouses in reaching a fair and secure settlement to provide financial security for both parties in retirement.

5. What happens to pension entitlements if your ex-spouse passes away

Your rights to their pension depend on whether you finalised the divorce settlement and the type of pension. If the divorce was finalised before your ex-spouse passed away and a pension sharing order is in place, or they formally nominated you as a beneficiary on their pension provider’s “Expression of Wish” form before their death. This means that your share of their private or workplace pension is secure and unaffected by their death. Otherwise, divorce typically terminates an ex-spouse’s rights to any automatic surviving spouse benefits from their pension scheme.

Divorced individuals do not automatically inherit their ex-spouse’s state pension but might be entitled to inherit a portion of any extra state pension or lump sum the deceased built up (such as Additional State Pension or SERPS)—provided they reached the State Pension age before April 2016.

If you would like to discuss the issues in this article further and need advice on a conduct issue in your divorce, please contact Linda Pope in our Family Law team.

The information and opinions contained in this blog are for information only.  They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice.  Before acting on any information contained in this blog, please seek solicitor’s advice from Gilson Gray.