Pensions are often one of the largest assets in a marriage, so they can be a major part of any divorce settlement. Here’s an overview of the main routes and the things to weigh up.
The legal background
A few pieces of legislation shape how pensions are handled on divorce:
Matrimonial Causes Act 1973
Aims for a ‘clean break’ between the parties wherever possible.
Pensions Act 1995
Requires courts to take pension rights into account, and introduced earmarking of benefits and cash equivalent transfer values (CETVs).
Welfare Reform and Pensions Act 1999
Introduced pension sharing on divorce from December 2000, allowing pension benefits to be shared or split for a cleaner break.
The main options
Offsetting
One party keeps a larger share of the non-pension assets (such as the family home) while the pension is left untouched. It’s often the simplest route, but only works if there are enough other assets to balance things out.
Attachment order (earmarking in Scotland)
A court directs the pension scheme to pay a proportion of the benefits to the ex-spouse. It applies to private pensions but has limitations, including the member keeping control of the pension.
Pension sharing
This applies to all pensions except the basic State Pension. The benefits are valued and a share is transferred to, or set up within, the other party’s pension scheme. It allows a genuine clean break, though it carries costs and administration.
What is a CETV?
The cash equivalent transfer value represents the expected cost of providing the member’s benefits within the scheme. It’s a key figure when valuing a pension for divorce.
In summary
Where offsetting isn’t feasible, pension sharing is often a sound option — but costs, administration and professional advice all need careful weighing. The position for cohabiting (unmarried) couples continues to evolve, so it’s worth taking advice early.
Important — the risks
The performance of your investments is subject to risk. Its performance may fluctuate based on movements in the market and economic conditions. Capital is at risk. Currency movements may also affect the value of investments. You may get back less than you originally invested.
Past performance is not a reliable indicator of future performance. Tax treatment is based on an individual’s unique circumstances and may be subject to change.