Divorce & Pensions

A pension is often one of the most valuable assets of a marriage.

There are three possible ways of dealing with pensions on divorce:

Pension sharing orders

The court can make a pension sharing order when the divorce or civil partnership dissolution is finalised (but not for judicial separations). Under a pension sharing order, the pension is split and the benefits are divided on a percentage basis between the couple, so that each has their own pension to make contributions into in the future.

Usually, the pension credits are transferred out of the original scheme and into an entirely new pension scheme, although sometimes the pension credit may be transferred into a new pension within the existing scheme. Most UK pension schemes can be the subject of a pension sharing order, except the basic state pension scheme, whether they are already in payment or still accruing. You can’t normally draw down any benefits before the age of 55, but it depends on the specific rules of the scheme.

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Pension attachment

In some circumstances, such as judicial separation, a pension attachment order may be more appropriate. This is where all or part of a pension or lump sum is ‘earmarked’ for the other spouse. Although there are advantages to this, one significant disadvantage is that no new pension is created in the other spouse’s own name, so if the member spouse dies, the pension does, too. Another disadvantage is that the other spouse must wait until the member spouse takes their pension, before they receive their share. This can be problematic if one spouse reaches retirement significantly before the other.

Offsetting

Offsetting is where other matrimonial assets, like property or savings, are adjusted in favour of a spouse in lieu of pension rights, which are retained by the member spouse.

If you’re concerned about the division of pensions, a good place to start is to get a pension report from a pensions actuary. This will identify the most appropriate way to receive the pension credit. It’s also usual to instruct an independent financial advisor (IFA) specialising in pensions to advise you upon the best way to invest it.  Thanks to our strong links with other professional and financial advisors across North Wales, Shropshire and the North West, we can help you commission a pension report and put you in touch with an experienced IFA.