1. You don't have to give up your pension rights
You can decide to ‘offset’ your pension when you divorce, which essentially means the value of your pension is set against your other assets. So, for example, imagine you have a pension which is valued at £100,000, and together you and your ex have other assets, such as savings or property, valued at a similar amount. You may decide to keep your pension and let your partner have the other assets. Of course, it’s not always as simple as this, as it can be difficult to value what you own and divide it fairly, so you may need help from a solicitor or financial adviser. You and your ex-partner can, however, agree to offset your pension without a court order. Without a court order there’s nothing legally binding which could be a problem if something changes in the future.
2. You can have a ‘clean break’ by splitting your pensions
If you want you and your ex to each have your own separate pension pots in the future, you can split your pension when you divorce. Known as ‘pension sharing’ this means that once you’ve worked out how much of your partner’s pension you’ll receive, or vice versa, you can then transfer this amount to an existing or new scheme. It’s then up to you, or them, to decide what to do with it. Bear in mind only a court can make a pension sharing order.
3. You or your partner can pay some of your pension to each other
If you’re happy not to have a totally clean financial break from your ex-partner, you might decide to go for what’s known as a ‘pension attachment order’. With this type of arrangement, some or all of their retirement benefits can be paid to you once they start drawing them, or vice versa. A court must instruct the pension provider to make the payments to you or your ex-spouse. The main downside of this type of arrangement is that if your ex dies before retirement, you may not get anything, or vice versa.
4. You can’t split the State Pension if you divorce
Prior to April 2016, if you divorced and your ex-partner’s National Insurance (NI) record during your marriage or civil partnership was better than your own, you could claim a basic State Pension using their record. You’d lose these rights if you remarried or entered into another civil partnership with someone else. However, following the introduction of the new state pension in April 2016, your entitlement to the State pension now is based solely on your own NI record. If you’re unsure how much you might be entitled to, you should obtain a State Pension forecast. The new State pension is £164.34 in the current 2018/19 tax year. However, if you’ve built up entitlement to additional state pension under the old system, this is known as a ‘protected payment’ and it is possible for a court to order than this payment can be shared.
5. Advice matters
Divorce and splitting pensions can be really complicated, but it’s important to get it right. Pensions are often one of our most valuable assets and knowing what you’re entitled to could mean the difference between a financially secure retirement or struggling to get by. If you’re not sure how to proceed, get professional financial advice to help you decide what’s going to work best for both parties.