Today I’m discussing ways to split pensions during a divorce. After property, pensions are one of the largest assets to divide during a divorce, and can unfortunately be one one of biggest stresses due to the complications involved.

When a long marriage comes to an end, family law solicitors will usually try to aim for a 50/50 split and ensure that both parties come away with similar benefits, e.g. for stay at home parents that may have less pensions saved up – the pensions need to be split fairly with this in mind. However, this may not always be the outcome.

Ways you can Split Pensions During a Divorce

Many factors need to be taken into account when deciding how to split pensions during a divorce, These include your individual circumstances, the needs of the other spouse, how long you were married, how long you have been paying into your pension scheme, how much pension has been accrued since you started divorce proceedings, how much was accrued before you got married, and whether you currently have a similar amount to your spouse in your pension.

Solicitors will help you gather information such as death benefits, guarantees and any other issues. They can advise on how to approach valuations for divorce purposes in both ‘needs’ and ‘sharing’ based cases.

Below are the three ways that pensions can be shared during a divorce.

Pension sharing

One of the ways to split pensions during a divorce invoices one party sharing their contributions. The court can order that one person shares a certain percentage of their pension, making it more equal for both parties. The other spouse will then hold the pension under their name within a pension scheme. 

This can be a separate pension with the same scheme as within the marriage, or they can be externally transferred to a different scheme. This step is often out of a solicitor’s scope of work, so financial advisors can help with this.

Offsetting

Offsetting is where one person gets to keep all of the pension whilst the other gets more benefits from the other assets, e.g. they receive the family home.

However, £1 in a pension may not be equal to £1 in other assets. The person not receiving the pension may not get the same value as the pension as they may be subject to a ‘reduction’ from the courts. The reason behind this is that this spouse will get to receive these benefits now, rather than the other having to wait until retirement age to reap the benefits.

This is a more popular option, but it might not be right for everyone.There also needs to be sufficient assets for this option to take place, e.g. full legal ownership of a property. It can also mean that the person keeping the pension has very little ‘liquid’ capital.

Pension attachment

When a pension attachment order is made, a portion of the pension lump sum is paid directly to the spouse via the pension service provider. This is only received when the other spouse retires and can therefore access their pension money. 

The main difference here is that this sum is calculated by the value of the pension at the date of retirement, not the current value. This isn’t as popular as the other two options as the spouse will lose these benefits if they marry again.

It also doesn’t achieve the ‘clean break’ that many divorcing couples are aiming for, as you will no doubt have to be in contact again close to retirement age to discuss transferring of funds.

Speaking to a qualified family law solicitor can help you to discuss these options and take your individual circumstances into account – no two divorce proceedings are the same. Get help early and you can reduce the stress of dividing one of the biggest financial assets accrued during a marriage.