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  • Tracey O' Dwyer

Let's talk about pension sharing in divorce

I am often approached by people dealing with their divorce and finances, who say: "We are just dividing the house; we're not claiming against each other's pensions".

This can be an expensive mistake, and one which may well be rued as retirement approaches.

The fact is that pensions can very often be the most valuable asset in a marriage, but even where they are not, they should not be disregarded so easily. Workplace pensions have been mandatory for some years now, so pensions are a feature of the majority of cases.

I have also been told: "our pensions are roughly the same", only to find out that is not the case. Even if the fund value looks similar, not all pensions are equal. Some pensions such as final salary or defined benefit schemes may not show their true value by just looking at the fund value.

Because of the various different types of pension, and because in working out what someone will receive in retirement one must take into account the type of scheme, age of retirement, gender, and sometimes even health issues, it is often not a simple case of just "even-ing up" the fund values. In many cases an actuary or pension expert will need to be involved to work out what split of pensions would produce equal incomes in retirement, or what income would be produced by splitting fund values.

Leaving pensions out could produce a very unfair outcome, and could leave one person disadvantaged when it comes to retirement.

How does pension sharing work

A pension share pursuant to divorce is not something you can easily do yourselves. The pension company will require sight of a sealed financial remedies (court) order (whether by consent or court decided), a pension sharing annex and the final divorce order (previously called decree absolute). You cannot simply contact the pension administrators and ask them to split it.

Once a pension share is implemented, that portion of pension becomes yours. Some schemes will allow you to retain your pension credit within your ex-spouse's scheme, but in your name, whereas others will offer you the option to have it paid into the scheme of your choice. It is important that you seek independent financial advice as to your options.

A key point is with a pension share, that portion of the pension becomes yours, in your name. That means, once you have it, it will not be affected by your ex spouse's death.

There are other ways to deal with pensions, and these include:

  • Earmarking: this is rarely used. This is when instead of giving the recipient a pension share in their own name, the pension administrator is ordered to pay a portion of the pension to the recipient of the earmarking order. The big disadvantage to this is that if the pension holder dies, the pension dies with them, in contrast to pension sharing.

  • Offsetting: this is a complex area where calculations are attempted as to what £1 of other capital might be worth in pension. This might be used if someone specifically wants more of another type of asset. However, expert advice should always be take because capital and pensions are not the same. They meet different needs. For example, a wife might receive more capital because she has a need for that as she earns less having been mostly responsible for childcare, but that does not necessarily mean she should receive less in pension to make up for the inequality on capital.

Don't overlook pension, and your future self may well thank you.

If you would like to talk about anything else please get in touch here or send an email to


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