What are the options for dealing with pensions in a divorce?

In many divorce cases, the two largest assets are the family home and the parties’ pensions. Pension funds are a shareable asset which can be divided between you and your spouse in the event of divorce. Hannah Pinder, trainee solicitor in Harrison Drury’s divorce and family law team, looks at the options for dealing with pensions.

Pension sharing in a divorce settlement can sometimes be a difficult issue to resolve, therefore it is recommended that you seek legal advice on your entitlement to your spouse’s pension.

There are two main types of pension schemes: defined benefit and defined contribution. A defined benefit pension pays you income in retirement based on your salary and your length of service, whereas a defined contribution pension is a fund that you contribute into throughout your working life, often with your employer matching your contributions and those funds are invested on your behalf.

How is the value of a pension calculated?

The starting point is to request the Cash Equivalent Transfer Value (CETV) for all pensions directly from the pension provider. This figure represents the capital value of the pension on the date the CETV was issued. All pension providers will calculate transfer values differently and there is no ‘one size fits all’ approach. CETVs of defined benefit pensions, can be undervalued in terms of the benefits they provide upon retirement, compared to defined contribution CETVs.

How are pensions divided?

Pensions can be shared between parties on divorce just like any other assets such as the family home or savings. The court has the power to make any order that it feels is appropriate in the circumstances, with the main aim of achieving a fair outcome for both parties.

Some orders the court may make are as follows:

• A pension sharing order – This is the most common approach. A percentage of one spouse’s pension funds is transferred into a pension fund in the other spouse’s name.
• A pension attachment order – Whereas a pension sharing order divides up the parties’ pension provision at the time of divorce, a pension attachment order redirects part or all of one spouse’s pension funds to the former spouse when it comes to be paid.
• Pension offsetting – This is where the pension holder retains their pension in full and the other spouse would retain a greater value of other joint assets, such as the family home.

For further information please refer to our blog post: Will I receive a share of my spouse’s pension in our divorce settlement?

Pensions in divorce proceedings is a complex area, with a range of options for both parties to take into consideration in an attempt to reach a fair agreement. Our team of expert family solicitors are on hand to advise on all aspects of divorce and financial settlements. To book an initial consultation free of charge, please contact Harrison Drury’s divorce and family team on 01772 258 321.