When a marriage ends, it is typically the family home and other tangible assets that dominate conversations about a financial settlement. A pension as an asset is often misunderstood or forgotten, and it rarely receives the same attention. Yet for many couples, a pension is one of the most valuable financial assets they own after the house, and in some cases, it may be worth more than the property itself.
Our previous article, ‘The Importance of Pensions in Financial Settlements Following Divorce’, explained why this is so easy to get wrong. In this blog, we pick up where that one left off, highlighting how pensions can be divided, focusing on Pension Sharing Orders, and how they work in practice.
Why Pensions Are So Easy to Overlook
Pensions can feel remote during a separation, and their immediate value is often not appreciated, especially if retirement is a few years away. The value on a pension statement does not always feel real in the way a bank balance or house does. That is exactly why pensions are so often pushed to one side.
A common problem is that one partner has built up a much larger pension than the other, often because they earned more, received greater employer contributions, invested more in a private pension scheme, or because one of them stepped back from work to raise a family. If pensions are ignored, or if only the obvious assets are split, one person can walk away financially secure while the other faces retirement with much less security. We explored those wider issues in an earlier blog, ‘Dealing with Pensions on Divorce’.
Are Pensions Always Split 50/50?
No, there are no set rules on how a pension will be divided. In England and Wales, the starting point (like other matrimonial assets) is that pension rights count as part of the complete financial picture on divorce, regardless of whose name they are held in or when they were built up.
Under section 25 of the Matrimonial Causes Act 1973 (the Act), the court’s job is to reach a fair outcome that meets both parties’ needs, rather than to apply a fixed formula on the financial split. The length of the marriage, each person’s income and earning capacity, their ages, and their needs in retirement all feed into that decision.
However, the origin of an asset can also make a difference. The Supreme Court confirmed in Standish v Standish that the principle of equal sharing applies to property built up together during the marriage, while assets brought in from outside it falls into a different category. Read our previous articles for related information on that case, ‘Inherited Property in Divorce: When Does it Stop Being Yours?’ and ‘Standish v Standish: Supreme Court Clarifies Division of Assets on Divorce’.
A pension built up entirely before the marriage began may sit outside the shared pot, although the court can still look to it where it is needed to meet the other person’s reasonable needs.
The Three Ways Pensions Can Be Dealt With
There is no single method for dividing pensions. On divorce, there are three main routes, and the right one depends on the couple’s circumstances.
- Pension Sharing Order: This means that some or all of the pension fund that exists at the time of the Divorce is divided and a percentage of one person’s pension is moved permanently into a pension in the other person’s name. We provide further information on this option below.
- Pension Offsetting: This means one person keeps their pension in full, and the other receives a larger share of the non-pension assets, such as a better share of the equity in the family home. While it can suit a separating couple where one of them wants to stay in the house, comparing the value of a pension against cash or property is not always straightforward.
- Pension Attachment Order (also called earmarking): This is a type of maintenance order which obliges the pension scheme to pay a certain percentage of the monthly pension payments and/or cash lump sum paid out on retirement to the other party. It is far less common now because it keeps the two of you financially tied together and depends on the member actually retiring and drawing the pension.
What Is a Pension Sharing Order?
A Pension Sharing Order is a court order that divides a pension between a divorcing couple. It came in under the Welfare Reform and Pensions Act 1999 and has been available for divorces started on or after 1 December 2000.
The order sets out a percentage of the pension’s value. That percentage is taken out of the original pension, which is known as a pension debit, and used to create a pension for the other party, known as a pension credit. The figure will not necessarily be a fixed 50/50 split; it will be whatever the court considers fair.
Once the order has been made and put into effect, the share belongs to the person receiving it outright. Depending on the scheme, they can usually keep it within that scheme as a member in their own right or transfer it into a pension scheme of their own elsewhere. The appeal of a Pension Sharing Order is that it gives the separating couple a clean break. Unlike an attachment order, there is no continuing financial link between the two of you regarding your pensions.
How Do You Value a Pension?
Before anything can be divided, the pensions need to be valued. This is usually the Cash Equivalent Value (CEV), sometimes known as a Cash Equivalent Transfer Value (CETV), which the pension provider supplies on request.
For a straightforward defined contribution pension, where the value is simply the size of the pot, the case equivalent gives a reasonable picture. For defined benefit schemes, including final salary and public sector pensions such as those held by teachers, military personnel, nurses and police officers, the figure on the statement can significantly understate what the benefits are actually worth. In those cases, the guidance from the Pensions Advisory Group (its second edition, known as A Guide to the Treatment of Pensions on Divorce, published in 2024) recommends obtaining a report from a Pension on Divorce Expert, or PODE. This is generally advised where the pension is worth more than £100,000 or where a defined benefit scheme is involved, and the expert is usually instructed jointly so that both parties share the cost and rely on the same figures. There are numerous other reasons highlighted in the Report.
The test for the instruction of an Expert is that the instruction must be ‘necessary’ to assist the Court resolve the proceedings. Valuations can take time, and delays in obtaining them can hold up the whole settlement. Therefore, it is worth requesting them early.
How a Pension Sharing Order is Obtained
In broad terms, the process tends to follow these steps:
- Both pensions are valued, with cash equivalent figures requested from the providers.
- Where the pensions are sizeable or include defined benefit schemes, a PODE advises on a fair percentage split and on which option, sharing or offsetting, produces a fair result.
- The terms are either agreed between the two of you or decided by the court and then set out in a financial order. Where you have reached an agreement, this is usually a consent order.
- The pension sharing element can only take effect once the divorce itself has reached the final order stage.
- Once the pension scheme has all the correct documents, it has up to four months to put the order into effect.
It is important to realise that divorce alone does not divide your finances. It is the financial order or consent order that makes any asset split, including pensions and any further financial agreements, legally binding. Dealing with the two together, rather than assuming the divorce settles everything or automatically severs all financial ties, is crucial.
What About the State Pension?
The basic and new State Pension cannot be shared through a Pension Sharing Order. However, it is still sensible for both of you to obtain a State Pension forecast, so that you each know what you are likely to receive and can factor it into the wider picture.
Why Early Advice Makes a Difference
Pensions are one of the more technical parts of a financial settlement in a divorce, and a small difference in percentage can translate into a large difference in income across a retirement that may last twenty or thirty years. Getting the valuation right and choosing the option that genuinely suits your circumstances is worth taking professional advice on. That usually means specialist legal advice alongside financial or actuarial input where pensions are substantial.
Speak to Our Family Law Solicitors
At O’Donnell Solicitors, our family law team regularly advises on complex matrimonial finance cases where pensions are a central issue, including Pension Sharing Orders and the valuation and division of more complex schemes. We work with a network of trusted financial advisors and pension specialists who can help to obtain a comprehensive valuation, so that nothing is left out of your divorce settlement.
Our family law solicitors are accredited members of Resolution and are committed to the Resolution Code of Practice, promoting a constructive approach to family issues that considers the needs of the whole family. Whatever your circumstances, our team is here to guide you through the process with clarity, sensitivity, and practical advice. Get in touch with us today for a confidential discussion about your circumstances.
You must be logged in to post a comment.