How are pensions shared in a divorce?

Each divorce is considered on a case-by-case basis, and the treatment of any pensions may vary. However, pensions are usually shared or divided during divorce settlements in one of three ways:

Pension sharing: This is essentially when pension benefits are split when you divorce, and typically, the partner without or with a small pension receives a share of their partner’s benefits in their name (to equalise projected pension income in retirement).

If you receive a share of your partner’s pension, you may be able to keep the pension in its current scheme, or move it to a new pension, but it depends on the rules of that particular scheme.

This option enables a clear break, with both parties being clear how much pension is given up and received.

Offsetting: This takes into account other assets, with the value of any pension offset against other assets. So, for example, your ex might keep their pension in full, while you receive a larger share of other assets, such as property.

This scenario is only possible if there are other assets that may be offset against the value of the pension. A pension sharing report may still be required from an actuary to advise as to the appropriate offsetting sum.

Attachment order (‘Earmarking’): This option is becoming increasingly rare on divorce, but in this case, the partner without the pension may receive income or lump sums at retirement, so they are essentially ‘earmarked’ for them.

The court may also state that some pension benefits are paid on death. However, there are particular disadvantages to this option. For example, it means you must wait until your ex-partner retires or dies to receive a share of pension benefits, and until this stage, you have no control over how this money is invested, and may receive less than expected.

When you do receive pension benefits, all income is taxed at the original scheme member’s personal rate. So, for example, income could be taxed at the higher rate, even if you are a basic-rate taxpayer. If you remarry, you may also lose your right to a future pension.

Author: wpadmin

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