How Are Pensions Dealt With in a Divorce Settlement?

Pensions are often one of the largest assets in a divorce or dissolution, sometimes worth more than the family home, yet they are easily overlooked. On divorce, pensions can be shared between the couple, offset against other assets, or made subject to an attachment order. Getting the valuation and the method right can make a substantial difference to your long-term financial security, so pensions should never be left out of the conversation.

Are pensions included in a divorce settlement?

Yes. All pensions can be taken into account, including workplace, personal and (to a degree) the State Pension. In many cases pensions built up before the marriage are included as well, although the court has discretion over how to treat them, particularly after a short marriage. The aim is a fair overall outcome that meets both people’s reasonable needs, both now and in retirement.

Why are pensions so often overlooked?

Couples frequently focus on the family home and savings because those feel more tangible. But a pension can represent decades of contributions and may be the most valuable asset in the marriage. Ignoring it, or assuming each person simply keeps their own, can leave one partner, often the lower earner or main carer, facing a far poorer retirement than the other.

How are pensions divided on divorce?

There are three main approaches, and a settlement may use more than one:

• Pension sharing order, a percentage of one person’s pension is transferred to the other, giving each a clean, separate fund. This is the most common option and supports a clean break.
• Offsetting, one partner keeps the pension while the other receives a larger share of another asset, such as the home, to balance the value. This avoids splitting the pension but requires careful valuation.
• Pension attachment (earmarking), part of the pension income or lump sum is paid to the other partner when it comes into payment. It is used less often, because it does not give a clean break and depends on the member’s choices.

How are pensions valued?

Pensions are usually valued using a cash equivalent transfer value (CETV), but this figure can significantly understate the real worth of some schemes, particularly defined benefit (final salary) pensions and public-sector schemes. Two pensions with the same CETV can be worth very different amounts in practice. In more complex cases, the couple or the court may instruct a pensions on divorce expert (PODE), usually an actuary, to advise on a fair split. The Pension Advisory Group has issued guidance encouraging this approach in appropriate cases.

What about the State Pension?

The State Pension itself cannot be shared, but a person’s National Insurance record and entitlement can be relevant to the overall picture, especially after a long marriage where one partner has a limited record of their own because they cared for children or the home.

Getting it right

Pensions are technical, and a mistake is hard to undo once a court order is made. We work with financial advisers and actuaries where needed to make sure pensions are valued and divided fairly, rather than treated as an afterthought. Our financial settlements page sets out how this fits into the wider settlement, and you can read more about the process on our divorce and separation page. To discuss your situation, please request a callback.