Can I Keep My Pension if I Get Divorced?
11 October 2018
By Family Law Paralegal, Harry Low
When dividing marital assets and finances after a divorce, pension pots will be taken into consideration. If the Court believes that it is the fair thing to do, then your ex may be entitled to a share of your pension.
Why Would My Ex Be Entitled to My Pension?
If you have a pension that was intended to provide for you both in old age, your ex may still be entitled to a share of this when you get divorced. It could be that they are financially weaker because they have given up work to care for children, for example, safe in the understanding that they would be provided for in retirement even if they have not built up their own pension pot. In this instance, it's likely that the Court would consider it fair for them to have a share of your pension.
After you get divorced, it's very important to take steps to end all financial commitments between you and your ex. This will not happen automatically when you divorce, but can be done by obtaining a Financial Order from the Court, in the form of a Consent Order or Clean Break Order. Without this, one person could still claim entitlement to the other's money years into the future.
When you are finalising the finances after your divorce the Court will look at all matrimonial assets, including any pensions held by either party. Your spouse could be entitled to a share of your pension, which would be limited to the contributions that you have made to it during the marriage.
If you are not married or in a civil partnership, your pensions can't be shared if you separate.
How Much of My Pension Would My Ex Get?
Before knowing how much of your pension your spouse is entitled to you will need to establish the cash value of your pension and obtain valuations of all other matrimonial assets. Pensions will usually be one of the largest matrimonial assets held in the marriage, after the family home.
To establish the cash value of your pension, a request to your pension provider for the CETV (cash equivalent transfer value) will need to be made. When the CETV is received you will need to calculate how much was contributed to the pension during the marriage.
If you have been paying into your pension for 30 years and your marriage was only 5 years in length then you will not use the entire CETV figure, but only a portion of it. This will be the portion that represents the 5 years that you were married. You may need to engage an actuary to help you work this out. This is the figure both your Divorce Solicitor and the Courts will use when drawing up the Financial Order.
How Matrimonial Assets Are Split
When deciding how to divide matrimonial assets, the primary concern for the Court will be ensuring that both parties leave the marriage with a secure financial future. If your spouse is economically weaker, then the Court will look to redress the balance.
The majority of financial proceedings in divorce will start with a 50:50 divide of the matrimonial assets, including pensions. However a 50:50 divide is not always appropriate, as influencing factors such as the length of the marriage, contributions made to the pension during the marriage, and whether a parent gave up their career and thus their own pension contributions to raise children.
For those wishing to protect their pension during divorce, consideration will need to be given to the other assets within the marriage. Alternative assets may need to be relinquished and offered to your spouse to ensure that they are receiving a fair and reasonable settlement in lieu of your pension. This could include transferring a greater share of equity in the matrimonial home, making a lump sum payment from savings or setting up ongoing maintenance payments to balance any inequality. This is known as 'Pension Offsetting.'
For those who are unable to raise an alternative source of funds to offset against their pension (for example if there are little or no assets), it may not be possible to fully protect the pension. In this instance, a 'pension share' may be brought into effect as part of a financial consent order. Even in this instance, a divide of 50:50 may not equate to an 'equal income' for both parties upon retirement. Those with more complex circumstances may require an Actuary to determine the correct percentage split.
For more information on how a pension might be divided in divorce, see Splitting a Pension in Divorce.
It is important to remember throughout these proceedings, any Financial Order placed before the Court must be fair and reasonable and ensure a secure financial future for both people. If the Court does not believe this to be the case, then the Order will be rejected.