How pensions are divided in divorce

A pension may be a significant asset when considering the appropriate financial settlement upon divorce. Pension assets are treated in a similar manner to other capital assets of the marriage, in that insofar as the pension in question is a “matrimonial asset”, namely built up during the course of the parties’ marriage, then the starting point is that it should be shared equally. As such, an individual may be entitled to a share of their spouse’s pension despite the fact that it is held in their spouse’s name, and vice versa. If, however, the pension is instead a “non-matrimonial asset”, perhaps because it was built up prior to the marriage, then it is not immediately subject to equal sharing (albeit that it still may be required to meet a divorcing party’s “needs”, to include their need for pension provision into retirement).

There are a number of ways in which pension assets can be divided upon divorce. Most commonly this will involve a pension sharing order or “offsetting”, but in rare cases a party can obtain a pension attachment order (which reallocates the member’s pension benefits to the spouse when it comes into payment). A pension sharing order means that a spouse is entitled to a percentage of the value of the other spouse’s pension. That money is “pension credit” and can either be transferred into an existing pension, or a new pension arrangement entirely. Offsetting is where the non-member spouse receives more of the non-pension assets to “offset” the existence and value of a pension scheme.

There is a specific requirement for the disclosure of pensions, and a pension valuation, in financial remedy proceedings upon divorce. The court expects parties to a divorce to obtain an up-to-date basic statement of the value (the CE: Cash Equivalent) and rights or benefits accrued under the pension. Due to the complex nature of pension arrangements and their CE values, parties to a divorce in which there are significant pension assets often require an actuarial/pension expert to report on the most cost effective way to divide the pensions (from a capital perspective, but also factoring in what income can be derived from the arrangement).

Vardags work exclusively with high and ultra-high net worth clients, such that there is often significant pension provision to be divided upon divorce, which necessitates actuarial/ expert input. Vardags has excellent relationships with established actuaries and pensions experts, and can recommend the right expert to become involved to advantage your case, at the stage at which it becomes necessary. Appropriate disclosure of the pension arrangement must also be sought and provided, and Vardags will forensically examine the date on which pension contributions were made, in order to determine what arguments can be deployed with respect to matrimonial vs non-matrimonial assets. 

If you’re considering or going through a divorce and wish to know about the devision of pensions, click below for a free initial consultation with one of our expert divorce solicitors.

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