Pension Sharing & Splitting on Divorce

Pensions are often dealt with as part of the financial settlement on divorce. Sometimes they have a considerable value and it is important that they are taken into account in dividing assets fairly between the parties. Expert assistance may be needed to help unravel this complex area and our experienced family lawyers will provide advice about the best approach to take in your particular circumstances.

When the division of pensions is discussed a pension scheme cash equivalent value (CEV) may be used as a starting point. This is because a pension is often treated as a capital asset even though it is not liquid cash. Because pension also provides income, input from an actuary may be required to look at how the pension can be shared to provide income for both parties on their retirement

In a divorce, pensions can be dealt with either by a pension sharing, offsetting, or by earmarking. All of these options require a Court Order to be effective. Read more about these three options below to see what is right for you.

Pension sharing order

This is where a percentage of one party’s pension is transferred to a pension, which belongs to the other. Both parties end up with completely separate pension funds and this can help secure a clean break. There can be considerable administrative costs to be paid to the pension provider for this service.

Offsetting

Offsetting is where one party is compensated for the loss of pension rights by receipt of other assets. For example, one party might keep a property or more cash, while the other retains their pension.

Earmarking

Earmarking means that a percentage of the member’s pension is set aside for the ex-spouse to claim on retirement. The benefits are not necessarily watertight, and would be lost if the ex-spouse remarries or the member dies.