How much of my husband’s pension am I entitled to in a divorce?

My husband and I are separating after 25 years. He’s always been the breadwinner, whereas I’ve only had a part-time job to fit in with raising our children. The plan was always that we’d be able to live off his pension when we retired, but now we’re divorcing I don’t know where I stand. I have no pension of my own and not enough time left to build a decent one. Am I entitled to some of my husband’s pension after we divorce?

Question asked by Mrs A Barkley
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Answered by Michael Englefield

 

What happens to pensions in a divorce?

Money worries are hardly unusual after the end of a marriage or the dissolution of a civil partnership. One of the most common questions is ‘How are pensions split in a divorce?’.

Dividing pensions in divorce: pension sharing order, pension earmarking or pension offsetting?

Many people wonder how much of their spouse’s pension they’re entitled to in a divorce. It can be a complex area, particularly if the divorce is acrimonious.

How much of your husband’s pension you’ll receive after a divorce depends very much on the circumstances you and your husband are in, as well as the method agreed for sharing the pension post-divorce.

As well as financial advice and/or pensions advice, each party should always seek advice from a divorce solicitor as well.

The only way to divide your husband’s pension during the divorce will be via a court order. Whether the courts will agree to splitting the pension in the divorce will usually depend on the pension provisions of the two parties. If there’s a significant imbalance in pension provisions between the separating couple, then the courts are more likely to try to redress this balance by sharing one spouse’s pension with the spouse who has little to no pension savings.

Court orders can split pensions between husbands and wives in divorce

Options for splitting a pension in a divorce

There are three main options for splitting a pension in divorce:

  • Pension Offsetting, where your husband’s pension isn’t actually divided but you receive an asset of corresponding worth during the divorce process, e.g. a property with an equivalent value to his pension.
  • Pension Earmarking, where the court orders that you receive a set percentage of your husband’s pension benefits, so if he had a pension of £20,000 a year and the court said you should have 50%, you’d each receive a pension of £10,000 per year.
  • A Pension Sharing Order, which offers the cleanest break of all the pension solutions and sees you awarded a set percentage of the value of your husband’s pension savings, which are then broken away from his plan to set up your own pension in your name, either within his pension plan or totally separate from it .
 

Divorce, final salary pensions and cash equivalent transfer values

If your husband has a final salary pension, it can complicate matters yet further. That’s because there’s no definable pot of pension money to split during the divorce that belongs to him.

If your husband has a defined benefit pension, then his retirement income is a promise from his employer and is not reliant on investment returns or annuity rates. It may also be linked to his final salary, which might not yet be known.

Consider carefully all your options for sharing a pension in a divorce

If this is so, your case will require additional analysis and expertise and, unfortunately, cost. One option could see your husband a cash equivalent transfer value to transfer out of his final salary pension scheme.

This would give him a definite pot of pension money that would be easier to split in a divorce, but given that final salary promises are the gold standard, offering a retirement income for life, it’s understandable that he might be reluctant to give that up.

Moreover, assuming you are rewarded a proportion of his pension, if the divorce ends with your husband transferring out of his final salary pension, you’ll also be giving up your share of a guaranteed income for life. So it might not be the best option for either of you.

 

How should my husband’s pension be shared in a divorce?

Unfortunately, that’s not an easy question to answer. Again, this will depend on your circumstances and your plans for the future.

There are positives and negatives to all three of the options outlined above for dividing pensions in divorce.

With pension offsetting, it’s difficult to equate the future value of a pension with the value of an asset today, such as a house. However, you’ll always have that cash, even if you remarry or your ex-husband dies before you.

Pension earmarking means your ex-husband will have control over when you’ll receive the pension benefit: you have to wait until he retires to see a penny. Payments also stop if he predeceases you or you remarry. It does give you a stake in the value of his pension at the date he chooses to take it, though, unlike offsetting.

Pension sharing orders offer the cleanest break between former spouses, although if your husband was married before you and his pension is already subject to a pension sharing order from his first wife, his pension can’t be shared with you.

Seek expert financial advice, pensions advice and, above all, legal advice before any decisions are made with regards to sharing a pension at the end of a marriage. This is doubly important if there’s a final salary pension to be split in the divorce.

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This information does not constitute financial or other professional advice. You should consult your professional adviser or contact us directly on 02084327333 should you require financial advice. It is important to ensure any insurance policy you take out is suitable for your needs.
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