When deciding upon a financial settlement on divorce, both parties assets are taken into consideration. However, there is one category of asset that is all too often overlooked or not given sufficient importance: pensions. 

Pensions can be one of the most valuable assets upon divorce, often second only to the former matrimonial home. As one of the purposes of a financial settlement is to ensure that the parties have financial provisions for their future, including in retirement, pensions must be appropriately considered. 

But a recent survey by the consumer magazine Which? shows that this is not the case all too often. 

 

Seven in ten missing out on pensions.

In May 2022, the magazine surveyed 948 of its members who had recently gone through a divorce to find out whether they had included pensions in their financial settlement. 

The result was extremely concerning. No fewer than 71 per cent of those surveyed said pensions had not been included in their settlement, suggesting that many people going through divorce are missing out on their full entitlement, with possibly devastating financial consequences when they reach retirement age. 

Those consequences would, of course, be avoided if those people had sought expert advice upon their pension entitlement before entering into any divorce settlement. 

It may be that both parties have adequate pension provisions of their own. Still, more often than not, one party, usually the primary breadwinner, will have significantly greater pension provision than the other. 

In such cases, there must be some form of adjustment in favour of the party with less pension provision to ensure a fair settlement. How this happens will depend upon the individual case. 

 

How pensions are dealt with in a divorce.

There are three ways a pension can be dealt with during divorce. 

Firstly, there can be an ‘offsetting’ arrangement, whereby the party with less pension provision is compensated by receiving a more significant share of other assets, such as the former matrimonial home. 

But such an arrangement can be fraught with difficulties, mainly as it is not always appropriate to directly compare a pension’s value with another asset’s value. Certain pensions may, in reality, be worth considerably more than their stated value. 

The second way pensions can be dealt with is by making a ‘pension attachment order’. This is an order stating that one party will receive part of the other party’s pension when the pension comes into payment – a type of maintenance. 

But pension attachment orders also have their problems. For example, the person in whose favour the order is made has no control over when the pension comes into payment, and the order will end upon the other party’s death. 

The third way of dealing with pensions during divorce is perhaps the most satisfactory: the ‘pension sharing order’. This is an order transferring all or part of one party’s pension into a pension belonging to the other party (whether with the same pension scheme or with a different pension provider). 

For example, a pension sharing order can be used to arrange that both parties are left with pensions of equal value. 

Perhaps unsurprisingly, the Which? survey found that many of the respondents did not want to share their pensions. However, as indicated, sharing is often the best way to deal with pensions and is likely to be favoured by the Court if the settlement cannot be agreed upon. 

Furthermore, recent cases indicate that the Court must ensure that the principles of fairness and equality apply to the division of pensions as much as any other asset. Furthermore, in more modest asset cases, it is unlikely that pre-marital accrual of pensions will be excluded. In W v H [2020] EWFC B10, HHJ Hess stated that “where the pensions concerned represent the sole or main mechanism for meeting the post-retirement income needs of both parties, and where the income produced by the pension funds after division falls short of producing a surplus over needs, then it is difficult to see that excluding any portion of the pension has justification.”.   

Family Law Solicitor Marylebone

Whichever method for dividing pensions on divorce is used, dealing with pensions is complex and should not be attempted without first seeking expert legal and financial advice. Therefore, do not hesitate to get in touch with our experienced family law solicitors today. Please call 020 7123 4600 or email contact@marks-law.co.uk.