What Happens to Pensions on Divorce?

When a couple divorces, pensions are often one of the most valuable assets (sometimes worth more than the family home), and they must be properly dealt with as part of the financial settlement. Ignoring the pensions is not an option. If you’re separating and unsure how your pensions will be treated, our Family Law team can talk it through with you.

What types of pension matter?

All pensions count, including workplace pensions, personal pensions, and State Pensions. Pensions broadly fall into two categories: Defined Benefit schemes (which promise a set income in retirement based on salary and years of service) and Defined Contribution schemes (where money is invested in a personal pot). Both types, along with State Pension entitlements, need to be fully disclosed and considered.

How are pensions divided?

There are three main ways to deal with pensions on divorce:

1. Pension Sharing Order: the court splits a percentage of one person’s pension and transfers it to the other, giving them their own independent share to invest as a pension in their own name.
2. Pension Attachment Order: part of the pension income or lump sum is paid to the other spouse when the pension holder retires. This is now rare.
3. Offsetting: one person keeps their pension, and the other receives a larger share of other assets (such as the house) to compensate. Whilst this may be the most common approach in practice, it carries risks if the pension is not properly valued.

Why is proper valuation important?

The standard “Cash Equivalent” value given by a pension provider can be misleading, particularly for Defined Benefit pensions. A specialist called a Pensions on Divorce Expert (PODE) may be needed to provide a more accurate valuation so that the settlement is fair. We can advise you on whether you’re likely to need one and, if so, how to go about it and what it might cost.

What does “fair” look like?

The court aims for overall fairness, which might not be a 50/50 split. In most cases (called “needs-based” cases), the focus is on making sure both parties can meet their financial needs, including in retirement. Factors such as the length of the marriage, each person’s age and health, earning capacity, and who gave up work to care for children can all play a part.

Other important points to consider

• State Pensions are valuable and should not be overlooked; entitlements should be checked in every case.
• Tax implications can arise from pension sharing and need to be understood before agreeing a settlement. Get the right advice from a tax expert before making any decisions.
• Age gaps between spouses can create an “income gap” where one person cannot access their share of the pension for many years. This requires careful planning.
• Pension freedoms (introduced in 2015) allow greater flexibility in accessing Defined Contribution pensions. Where they’re relevant, they need to be taken into account.
• Your Will and pension nomination are worth reviewing once your settlement is in place. A divorce doesn’t automatically update who your pension provider has on record to receive your pension if you die, and changes from April 2027 will affect how pensions left on death are taxed.

Pensions are complex, but with the right team in your corner (including specialist pension and tax advisers where needed), you can protect what you’ve worked for and secure a fair outcome.

How we can help

Our experienced Family Law team has helped many clients with settlements involving pensions, as part of the wider financial side of separation and divorce. We can talk you through your options for your own situation. We offer a fixed fee initial consultation with a solicitor specialising in Family Law, so you will know exactly what that initial guidance costs before you commit to anything. No surprises, and no pressure to sign up for more than you need.

To book your consultation, get in touch online, email info@burtons-solicitors.com or call your nearest office.