How is a final salary pension shared on divorce?

When you divorce or dissolve a civil partnership, your financial assets — including pensions — are considered ahead of the final settlement. Here, we explain how pensions are affected, valued and shared upon divorce.

Are all pensions split equally upon divorce?

While the starting point in any divorce is to equally divide any pensions, this does depend on your circumstances. For example, if a considerable amount of pension was built up prior to marriage or if a marriage was very short, there may be no justification for an equal share. Every case is different and it is important to seek legal advice at the earliest opportunity.

Final salary pensions

A final salary pension (also known as a defined benefit pension) is often found in the public sector and pays a guaranteed pension from the day you retire until the end of your life. The amount is based on factors such as your salary when you left employment and how long you have worked for your employer as a member of the pension scheme.

In order to share a final salary pension scheme, the first step would be to obtain the cash equivalent transfer value (CETV) for that pension and all other pensions that you or your former partner may have.

Depending on the value of the pensions, it would usually be advised to seek expert advice as to how to best share them upon divorce/dissolution. It is common for a pension expert to be instructed to provide calculations as to how to share the pensions to equalise income or capital value in retirement. Further, the expert can be asked to provide additional calculations so that, for example, only pension built up during the marriage/civil partnership is used in any calculations.   

A pension sharing order can then be made by the court which will specify what percentage of a pension should be shared and to which couple.

Consent orders

A consent order is an important document that embodies the financial settlement reached by consent with your former partner upon divorce/dissolution and severs the financial ties between you. This order is then sealed by the court and becomes legally binding upon both parties.

If you have already obtained the final order in the divorce/dissolution (or decree absolute, if the divorce was issued before 6 April 2022) and are no longer married to your former partner but are yet to deal with the finances, do not worry — it is not too late to do so.

Until a financial order is obtained from the court, the financial claims arising from the marriage/civil partnership remain live. Where a financial order has not been obtained, either party can bring a claim for financial remedy no matter how many years have passed (albeit your claims may be restricted if you have remarried or entered a new civil partnership — for this reason, it is advisable to try and obtain a financial order prior to re-marriage).

If you have divorced and are seeking to deal with financial matters, it is advised that you take legal advice to determine the best approach to take.

Pension income after divorce

A pension income may be affected by divorce/dissolution if an order were made to share a pension from which you receive/will receive an income. The impact may increase your pension income if you were the partner that the pension share favoured (or decrease your pension income in the alternative).

It is important to note that any state pension cannot be shared. This income will remain the same upon divorce/dissolution.

Pension sharing annexes

Along with the main court order which sets out the financial settlement, the court will also issue a pension sharing annex. A pension sharing annex sets out what percentage of and to whom a specific pension is to be shared. Within any final order, the court will direct the couple to send the pension sharing annex to the pension provider.

Once the pension provider has received all relevant documentation — which will include the court order, pension annex, a copy of the decree absolute (or final order, if the divorce was issued after 6 April 2022) and pension sharing fees — they will have four months to implement the pension share.

If one person stalls or refuses to send relevant paperwork to the pension provider, an enforcement application can be made to the court.

Pension value

In order to value a pension on divorce/dissolution, a cash equivalent transfer value (CETV) is requested from the pension company.

However, sometimes CETVs can produce unfair and inaccurate values, especially where one party may have a final salary scheme and the other has a defined benefit scheme. Therefore, they may not provide a true reflection of the benefits available under that scheme.

For this reason, your family lawyer is likely to recommend that a pension expert is appointed to assist in the valuation of pensions.

If you have questions about what will happen to your pension upon divorce or the dissolution of a civil partnership, complete our contact form below.

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