Why Pensions on Divorce Should Not Be Ignored

When couples are divorcing, the immediate financial matters in dispute are often the family home and other assets that are readily accessible and realisable, such as cash savings and cars. Pensions are frequently overlooked, despite commonly being one of the most valuable marital assets. If divorcing couples fail to seek legal advice from an experienced professional and pensions are not properly dealt, this can have serious long-term consequences for both spouses.

The Second Largest Asset

After the family marital home, pensions are regularly the second largest assets acquired during a marriage. Workplace pensions and private pensions can have a Cash Equivalent Transfer Value of several thousands of pounds and their total value may not be immediately obvious, as pensions are typically only accessed on retirement. As a result, divorcing couples often mistakenly place less importance on pensions when determining financial arrangements.

Why Are Pensions Shared?

Couples often mistakenly believe that pensions are non-marital assets, since each spouse independently contributes towards the total value of their own pension pot. However, the law considers most pensions to be shared marital assets, as in many relationships one spouse’s non-financial contributions to the marriage has supported the other in building a larger pension pot. For example, one spouse may have taken time off work or reduced their hours to provide additional childcare and manage the family home, allowing the other to continue in full-time employment. Pension sharing recognises the value of such contributions and ensures fairness by dividing the total pension benefits that have accumulated during the marriage between the spouses.

Achieving a Fair Settlement 

To ensure that both spouses have adequate and fair provision to support themselves independently during retirement, a ‘clean break’ is most commonly achieved via the implementation of a Pension Sharing Order, whereby a percentage of one spouse’s pension is transferred to the other to achieve equality of income on retirement. Alternatively, Pension Offsetting can be applied, allowing one spouse to retain more of their pension pot in return for the other spouse retaining a larger share of another asset, such as the family home. A Pension Attachment Order is also available, which sets aside a specified amount of one spouse’s pension to be paid to the other spouse once the pension comes into payment on retirement.

Risks of Ignoring Pensions

Failing to consider pensions can result in unfair settlements that do not become apparent for several years after divorce. For example, one spouse may retain a high value pension pot whilst the other retains cash savings. Whilst this may initially appear to be a fair agreement, it may leave one spouse with inadequate income on retirement. Equally, such informal agreements could leave the other spouse open to a future claim on their pensions. Obtaining legal advice from an experienced professional to ensure that all assets including pensions are properly valued and dealt with in a financial consent order is therefore essential to achieve a legally binding outcome that provides certainty and protection for both spouses.

How Forbes Solicitors Can Help You

Forbes Solicitors offers nationwide services, with consultations available by telephone, video call, or at any of our offices. Whether you're considering family financial planning, navigating complex family dynamics, or need legal guidance on any related matter, our dedicated family division is here to assist. For more information or to discuss your case, please don’t hesitate to contact us on 0800 689 1058.