Dealing with pensions in divorce can be challenging. Where one spouse has greater pension wealth than the other, deciding how to deal fairly with that asset can be complicated, both practically and emotionally.
The person who has built up the pension over many years may, understandably, feel strongly that it is the result of their hard work, but the other spouse may require a share of that pension to meet their needs and will often have contributed to the relationship in other ways. Crucially, sharing pensions in some form is often the only way to ensure a fair division of assets that meets both spouses’ future needs.
A pension sharing order is one of the ways that a pension can be dealt with during divorce. In this comprehensive guide to pension sharing orders, we cover the following common questions:
- How are pensions split in a divorce?
- What is a pension sharing order?
- How does a pension sharing order work?
- When is a pension sharing order needed?
- What are the benefits and potential drawbacks of pension sharing orders?
- What is the process for obtaining a pension sharing order?
- How are pension sharing orders implemented?
- What are the potential complications and challenges with pension sharing orders?
- Can you get a pension sharing order after a decree absolute?
- How is pension sharing calculated in a divorce?
- Pension sharing order: can I take a lump sum?
- What happens to a pension sharing order on death?
- Who pays pension sharing order fees?
- How much does a pension sharing order cost?
- What happens if there is a failure to implement a pension sharing order?
- Can a pension sharing order be cancelled?
- What happens if my spouse refuses to provide pension details?
- Can I change a pension sharing order after it’s been issued?
- Why do you need expert advice on pension sharing orders?
If you need help with pension sharing on divorce or need further advice on your situation, you can take advantage of a free 30-minute telephone appointment to talk through your situation with our team.
To schedule this initial chat with one of our pension sharing solicitors, call 0800 321 3832 or complete our online form.
How are pensions split in a divorce?
There are three basic approaches you can take to splitting pensions in divorce:
- Pension sharing – Where the pension pot is split between the two spouses, so each ends up with their own separate pension.
- Pension offsetting – Where each spouse keeps their own pension but any difference in value is offset by giving the spouse with less pension wealth a greater share of other assets, such as the family home.
- Pension earmarking – Where a portion of the pension income is paid to the spouse with less pension wealth on an ongoing basis. This option is rarely used as it requires maintaining a financial link between the former spouses and does not constitute a ‘clean break’.
Any of these options for a divorce pension split can be agreed voluntarily between the separating spouses or they can be ordered by a court if a financial order is applied for.
For more information on the division of assets in divorce, you can read our blog ‘What am I entitled to in a divorce settlement?’.
What is a pension sharing order?
A pension sharing order is a court order used in divorce that requires one of the divorcing spouses to give a percentage of their pension pot to the other.
They can be made by a court if the couple cannot decide on how to deal with pensions in divorce but even if the couple has reached a voluntary agreement, a pension sharing order will still be needed to allow the pension administrator to carry out the transfer of funds out of the pension pot.
How does a pension sharing order work?
A pension sharing order will set out exactly how a pension pot should be divided between a divorcing couple. It will be made as part of a financial order or consent order covering how the total marital assets should be divided.
Before a pension sharing order can be made, the value of the pension pot will need to be determined. A Cash Equivalent Transfer Value (CETV) will need to be requested from the pension provider, which will establish the total cash value that can be removed from the pension fund for transfer to a separate pension.
The pension sharing order will require that a percentage of the CETV be transferred to a separate pension fund for the benefit of the receiving spouse. The new pension fund can either be within the existing pension scheme or an entirely different one depending on the scheme rules.
When is a pension sharing order needed?
A pension sharing order is needed whenever a couple will be splitting a pension pot as part of the division of assets in divorce. As covered above, even if a voluntary financial settlement has been reached, the order is still needed for administrative purposes.
Pension sharing orders are increasingly important in divorce given the increase in marriage and divorce in later life, where pensions are more likely to be at the forefront of a separating couple’s minds when handling finances.
What are the benefits and potential drawbacks of pension sharing orders?
Benefits of pension sharing on divorce include that it allows a clean break of the separating couple’s finances, giving each of them their own separate pension. It also means that the receiving spouse’s pension income is secure even if they remarry (this would not be the case with pension earmarking, where the receiving person’s entitlement to a share of the pension income would be lost on remarriage).
Pension sharing may be less attractive if there are other assets, such as the family home, that the person with less pension wealth would rather have in exchange for giving up their rights to a share of their spouse’s pension.
What is the process for obtaining a pension sharing order?
If you agree on the division of assets with your spouse, then you should apply to a court for a consent order to make what you have agreed legally binding. A pension sharing order can be granted by the court to deal with the division of a pension once a consent order has been granted.
If you cannot agree on the division of assets, you will usually need to apply to a court for a financial order to decide how your assets, including pensions, will be divided. When the court has made its decision, this will be set out in a financial order. A pension sharing order can then be granted once the financial order has been made.
How are pension sharing orders implemented?
When the court makes the pension sharing order, they will serve a copy on the pension provider. Once the pension provider receives a copy of the order and all relevant information, they have four months to transfer the funds to the new pension scheme. Both spouses will receive notification once this has been completed.
What are the potential complications and challenges with pension sharing orders?
There are various issues that can potentially arise with pension sharing orders. These include if the transferring spouse were to die before the transfer is completed, the transfer value of the pension changes between the order being made and the transfer happening, and delays in the pension provider making the transfer.
If you are concerned about these issues, it is important to discuss this with your legal adviser at an early stage. They can then provide guidance on any steps you can take to mitigate these potential problems.
Can you get a pension sharing order after a decree absolute?
A pension sharing order can be obtained at any point, including after a divorce has been finalised with a final order (formerly called a ‘decree absolute’).
However, it is strongly recommended that all financial matters be resolved before the divorce is completed and that you wait until after the pension sharing order is in place to apply for final order to avoid any potential issues with implementation.
How is pension sharing calculated in a divorce?
A court will look at various factors when deciding on the division of assets in divorce, including in relation to pensions. These factors include the reasonable needs of the parties, their age and earning potential, the length of the marriage, the standard of living enjoyed during the marriage and any contributions made by each party. If the couple have children under the age of 18, their needs will also be taken into consideration.
Pension sharing order: can I take a lump sum?
If you are receiving a share of your former spouse’s pension in divorce, then you can potentially take a lump sum, rather than having the funds transferred into a new pension scheme. However, there are significant financial implications to this, including around tax. It is therefore very important to take specialist advice on this matter.
What happens to a pension sharing order on death?
If the transferring party dies before a pension sharing order takes effect, the pension share is unenforceable against the pension scheme. Provided there is not yet a final order or decree absolute in the divorce, the transferee may be entitled to spouse or dependent benefits, depending on the scheme rules.
If the transferring party dies after it takes effect but before the order can be implemented, then the pension share will still take place.
If the receiving party dies before the pension sharing order can be implemented, then the order stands unless a successful application can be made to set that order aside.
If you find yourself in this situation, you should seek immediate legal advice to understand your position and what to expect.
Who pays pension sharing order fees?
Pension providers typically charge a fee to implement a pension sharing order. There will also be court fees and each party’s legal fees to consider. Who pays these will depend on the situation and what the parties can agree or what a court orders.
It may be that the pension provider’s fees are split between the parties or that the transferring party pays. The court fees will normally be split, and each party will typically cover their own legal costs, but this may vary if there is a large disparity in income and assets between the parties.
How much does a pension sharing order cost?
The pension provider’s fees can vary from nothing up to several thousand pounds, depending on the provider. There is no specific court fee for a pension sharing order as this will be covered by the fee paid to apply for a financial order or consent order.
Your legal costs for divorce pension sharing will depend on the complexity of the situation and how much support you require, so it is important to discuss this with your legal team upfront.
What happens if there is a failure to implement a pension sharing order?
If a pension provider fails to implement a pension sharing order within the required period without good reason, then it may be possible to ask for help from the Pensions Ombudsman. You may also be entitled to compensation for any losses you experience in the meantime.
If the fault lies with the transferring spouse, the court might be asked to assist further.
Can a pension sharing order be cancelled?
A pension sharing order can potentially be cancelled, but this needs to happen before it is implemented and before the divorce is finalised.
What happens if my spouse refuses to provide pension details?
There is a legal duty to provide a full and frank disclosure of financial information during divorce proceedings, including an account of all assets, such as pensions. If your spouse refuses to provide details of their pension, you can take legal action to force them to provide this information.
Can I change a pension sharing order after it’s been made?
Yes, you can change a pension sharing order after it has been issued as long as it has not yet been implemented and the divorce is not final. Once the order has been implemented, it cannot be changed.
Why do you need expert advice on pension sharing orders?
Dealing with financial assets such as pensions during divorce is often challenging and getting a fair division of assets is not necessarily straightforward, even if you believe your finances are relatively simple.
Getting expert legal advice helps to ensure that any negotiated settlement or court-ordered division of assets is fair and meets your reasonable needs. This is especially true where there are high value and complex assets involved.
Our pension sharing order solicitors are here for you
The division of pensions in divorce can be a very sensitive issue but one that it is vital to handle in the best way for your future financial security. Our friendly, expert team are here to make sure you get the right solution as quickly as possible while keeping unnecessary conflict to a minimum.
To take advantage of your free 30-minute consultation with our expert pension sharing lawyers, please call 0800 321 3832 or complete our quick online form.
Michelle Brammer
Divorce and Family Lawyer, Melbourne, Derbyshire
