Pensions on Divorce

Potentially, yes — when you’re married or in a civil partnership, pensions are considered in the overall financial settlement to meet financial needs and can be shared. 

However, the length of the marriage or civil partnership and whether your partner has their own pension can affect the percentage of entitlement. Your partner’s pension is therefore considered in the overall family pot as well. 

In some situations, pensions aren’t shared and there’s a chance that they can remain intact. Instead, pension entitlement can be dealt with by way of ‘offsetting’ against capital assets such as money in bank accounts (like savings) and equity in the house. The other partner could receive a larger percentage of the capital assets instead of claiming a percentage of your pension.

A pension sharing order tells the pension provider to transfer a percentage of the pension to whichever spouse is to benefit from the order.

While the pension share can sometimes remain with the same pension provider and be put into the receiving spouse’s name, more often it’s transferred into a different scheme.

Depending on the value of the pensions, it would usually be advisable to seek expert advice on how to best share the pensions upon divorce. It’s common for a pension expert (or pension actuary) to be instructed to calculate how the pensions will be shared to equalise income or capital value in retirement. The expert can be asked to provide additional calculations so that (for example) only pension built up during the marriage is considered.

A pension attachment order (also known as an earmarking order) redirects all or part of an individual’s pension to their ex-partner at the time the pension comes into payment.

The court can order that the ex-partner receives one (or a combination) of the following benefits:

• All or part of the pension member’s tax-free lump sum.
• All or part of the pension member’s monthly income.
• All or part of any lump sum which is paid upon the death of the pension member.

It’s important to note that the person whose favour in which the order was made will only receive the pension income when the pension member is of the age where they are in receipt of their pension. This type of order would also usually end on the pension member’s death or the remarriage of the receiving partner.

In many divorces, it’s common for an agreement to be reached which involves offsetting.

This enables you to ‘trade’ your right to receive a pension benefit or give away your pension benefits. For example, one spouse may retain more equity in the family home and forego a pension sharing order.

The problem with offsetting is that it’s difficult to compare the value of a pension with the value of an asset. Therefore, it’s always best to obtain specialist advice from a divorce or pension expert.

A decree absolute simply ends your marriage. It will not prevent a court from subsequently dealing with your former spouse’s financial claims. 

Even if you entirely agree about what should happen and you have implemented that agreement — for example, by selling the family home and dividing the proceeds between you — you should still have that agreement recorded in a final and binding court order, known as a consent order. 

A financial consent order details the terms of the agreement that you have reached with your spouse. You both need to decide how you will share the matrimonial assets, including capital assets, liabilities, pensions and income. 

If you and your spouse can reach an agreement in relation to your finances, this can be drawn up into a financial consent order by a solicitor and lodged at court with a £50 fee for the consideration and approval of the judge. After this has been paid, the order is legally binding. 

Once a separating couple has submitted their divorce application to the court —either on a joint basis or with one spouse submitting the application as the sole applicant — the court will issue the application. 

20 weeks after the issue date of the application, the applicant will be able to apply to the court for the Conditional Order.

The Conditional Order has replaced the ‘Decree Nisi’ under the old divorce regime (pre-April 2022, when the ‘no fault divorce law’ was implemented). This is the mid-point within the divorce proceedings — and even after the Conditional Order has been pronounced, the parties will still be legally married.

It's the Final Order (which has replaced the old ‘Decree Absolute’) that formally dissolves the parties' marriage. 

The Conditional Order is, however, important for two reasons:

1. The Conditional Order confirms that the court is satisfied that the parties have established that their marriage has irretrievably broken down (the ground for divorce) and as such they're entitled to their divorce.
2. It's only once the Conditional Order has been pronounced that the court is able to make legally binding orders in respect of the parties' finances.

It's therefore advisable that once divorce proceedings have commenced, negotiations in relation to the financial position take place so that it's possible an agreement may be reached during the 20-week waiting period from the issue of the divorce application. 

If an agreement is able to be reached, it'll be converted into a Consent Order and submitted to court for approval once the Conditional Order has been made by the court.

If discussions with your spouse fail, there are a variety of ways to resolve financial issues upon divorce. You could instruct a solicitor to negotiate on your behalf, try mediation, collaborative law or arbitration or issue financial remedy proceedings at court. 

If a consensual agreement cannot be reached using any one of these processes, the court can impose a financial order at the conclusion of financial remedy proceedings.

The aim of any financial settlement (whether decided by the court or negotiated outside of court) is to fairly divide the divorcing couple’s assets. All assets owned by the couple will be disclosed and their values ascertained. Where a business is involved, independent accountancy input may be required to confirm the value of the business or an individual’s shareholding.

This doesn’t mean that a business owned solely by one of the parties must be sold, or that the company itself must be divided up in some way. Often, the appropriate result will leave the business with the owner, while other assets will be given to or be retained by the other spouse, such as cash, property or pension.

There are many options in terms of how jointly owned businesses are dealt with when divorcing. It may be most practical for one spouse to transfer all their shares to the other as part of the financial settlement. In return for the transfer of shares, they may receive cash or other assets.

Sometimes a spouse may retain some shares, even if it’s agreed that they will not be involved in the day-to-day running of the business going forward. However, in such circumstances, the parties should consider entering into a shareholders’ agreement to regulate the business relationship and govern the way in which the business is run. 

There may also be occasions where shares can be sold to third parties, although this will depend on the nature of the business and how appropriate a sale is. There may also be some circumstances in which it’s felt that a business should be dissolved.