Pension Sharing On Divorce

Do I have to share my pension with my ex when we divorce? Are pensions always split in divorce?

No, you don’t have to share your pension and it doesn’t always get split. But it is worth bringing pensions into the financial settlement, because while couples separating often decide to keep their own pensions – that can be detrimental to one side and advantageous to the other.

So whilst technically you don’t have to share or split your pension, it’s prudent to bring them into the picture. They are the second largest asset people tend to have after the marital home.

How does splitting a pension during divorce work? Can I get half my partner’s pension in a divorce?

There are three main ways you can split your pension. The first way is offsetting, where you use the value of the pension against another asset. For example, the husband has a £200,000 pension and the marital home is worth £200,000 – a total of £400,000. Assuming they have nothing else, the wife might keep the property and the husband keeps the pension – you’ve offset the value of the pension against the property.

The second option is an attachment order. In Scotland it’s called an earmarking order. This would give the ex-spouse a portion of the pension income once the person starts to take their pension.

Let’s say it’s the husband’s pension and he has to give a percentage of those benefits to his ex-wife when he starts withdrawing money. If his pension is going to give him £1,000 and it was a 50% split, he would have to give his ex £500 a month. The same applies to any lump sums taken.

Under an attachment order, if the husband takes a lump sum of £30,000 from a pension, he’d have to give £15,000 to his ex-wife. There are some issues around attachment orders, which we will come on to later.

The third way is sharing, where you split the value of the pension by a percentage. If it was a 50-50 split and the husband has a £500,000 pension, he would keep £250,000 and the ex-wife would get £250,000. The split happens in the present – you don’t have to wait until pension age.

It doesn’t have to be 50-50 – sometimes it’s weighted more in one party’s favour than the other. The majority of the time the court will decide the percentage given.

Is my spouse entitled to my state pension?

Generally speaking, the answer is no, the state pension cannot be shared. But if someone retired before 6 April 2016, they might be entitled to something called the additional state pension, which is paid on top of their state pension.

That additional state pension can be shared. There are forms to fill in to calculate the exact amounts.

How could getting divorced affect my pension and retirement income?

It really depends if you’re the person giving away pension benefits or if you’re the person in receipt of them. If you’re receiving pension benefits, you’ll have greater funds available for retirement than you had prior to divorce. That might mean that you can retire earlier; it might mean that some of your income can go towards other financial goals, or it might just mean that you have a more comfortable retirement.

If you’re in receipt of an attachment order where you get a percentage of income or lump sums, you’re very much in the hands of your ex-spouse. You’ve got no control over when they start to take their pension benefits or their investment strategy – which might compromise your future benefits.

In terms of tax within the attachment order, your pension income would be taxed at the member’s highest marginal rate of tax. Let’s say I’m receiving the attachment order and I’m a 20% taxpayer, but my ex is a 40% taxpayer. They might be paying 40% tax on that benefit and then I would receive it after tax. So I’m actually in a worse position because I’m subject to their tax allowances, not my own. You might get lower benefits than if it was in your own name.

The other thing to bear in mind with an attachment order is that if you remarry before the other person takes their benefits, the attachment order will stop – you’d receive nothing. So it’s worth thinking about that when you’re choosing your options. It isn’t just for today. There may be implications down the line if your circumstances change.

On the other hand, if you’re the one giving your pension benefits away under an attachment order or as a pension share, then you won’t have as much money for retirement. It might mean you need to increase your contributions; you might need to work longer; you might have a less comfortable retirement.

What about pensions that are already paying out?

This is happening more frequently as older couples get divorced. You have exactly the same options: you can offset the pension against other assets, you can do an attachment order or a pension sharing order. There are no differences on that side of things.

The only thing to bear in mind is that certain pensions can’t be touched once they’re being received, such as a pension received as a death benefit. Say I had one of my parent’s pensions paying out to me because they’ve passed away; my ex can’t have any of that – it wouldn’t be included.

If I’m in receipt of a pension that already has an attachment or earmarking order on it, again, that can’t be shared either.

If the pension is already being paid out and there’s a guaranteed income, because somebody’s bought an annuity or they’ve got a final salary pension, the remaining income would need to be valued. That’s usually done via actuaries.