When getting married, the last thing a person is likely to think about is how their pension might be affected if they get divorced. It can be difficult to think about divorce at such a happy time, but if you don’t plan ahead, it could affect the rest of your life. If you enter into a marriage without a prenuptial agreement, or with one that is not worded to protect your pension, you may have to share your pension with your ex-partner if you divorce.
A pension is a very important personal investment, and some are worth a significant amount of money. In fact, in many cases, the pension is either the most valuable or the second most valuable asset a person or couple has, before or after the family home.
If you are entering into divorce proceedings, be sure to remember all your pensions, as these are valuable assets, all of which need to be disclosed when discussing financial resolution in a divorce. It could be easy to forget about an old pension fund and inadvertently fail to disclose it, but you don’t want to be accused of intentionally hiding an asset.
How Will Your Pension Be Divided in a Divorce?
When a couple enters into divorce proceedings, the total value of the pensions belonging to each of them is considered. This includes all pensions built up by either party, aside from their basic State Pensions.
In dividing up the assets, the court will try to obtain the fairest outcome for both parties, and because every relationship is unique, there is no one way for them to accomplish this. They may begin with a 50/50 split as a starting point, but from there, they will have to take a number of factors into consideration before making a decision.
For example:
- Who will have custody of any children resulting from the partnership?
- What are the financial means of each partner, and what do they each require to maintain a fair standard of living?
- How old is each partner, and are they in good health?
- How easy is it for each partner to improve their own financial situation?
- How long have they been married, and what portion of the pensions in question were accrued during that time?
- How much has each partner contributed towards the family, including the raising of children and the earning of money.
If each partner has their own pensions and will be sufficiently cared for when they reach retirement age, the pensions of both parties may be completely ignored in the divorce proceedings.
How are Pensions Dealt With in Divorce?
There are usually 3 ways that pensions are dealt with in divorce cases:
Offsetting – If one partner does not have a pension, or their pension is of significantly less value than that of the other partner, the value of the pensions may be offset against the value of other assets in the marriage. In other words, the partner with the pension would keep their pension intact, while the other partner would receive other assets, such as the family home, for example. This is only possible if there are enough assets of sufficient value in the marriage.
Earmarking – Earmarking, also known as an attachment order, is when the partner who does not have a significant pension is promised a certain amount of the other partner’s pension when they receive it. This option could work out badly for the partner without the pension, as they will have no control over it in the intervening years. The partner who owns the pension could invest the money badly, choose to retire early, or simply stop paying into the pension, in which case the receiving partner would obtain less money than they expected. They could also lose money due to the amount of tax the pension holder has to pay on receipt, or they could lose their right to the money entirely if they remarry before the pension is paid out.
Pension Sharing – This is the favourite choice of most divorcees, as it constitutes a clean break, with each party walking away with their share at the time of the agreement. With this method, the pension is split at the time of the divorce, and the partner who did not originally own the pension will have their share transferred to them right away. The choices each partner might make later in life will have no bearing on the other party’s share of the pension, and each share will be dealt with completely separately going forward.
Are State Pensions Shared in a Divorce?
You have nothing to worry about when it comes to your basic state pension – this cannot be split in your divorce. However, any extra State Pensions you might have may be subject to sharing. If your ex-partner remarries, however, they are likely to lose this right.
If one partner has paid a significant amount into National Insurance, the other could receive a better State Pension upon divorce, as long as they do not enter into another official partnership before they reach retirement age.
If you are worried about your debts, please contact our non-judgmental team at Debt Movement for caring and understanding debt guidance and solutions.
