How to Protect Your Pension in a Divorce in the UK

Divorce can be a daunting prospect for many reasons, not least because it means your future will no longer look like the one you had planned. One area where this can be particularly worrying is around your future financial security, especially with regard to your pension.

If your spouse has a lower income or less in assets than you, it is likely that any divorce settlement or court-ordered division of finances will involve you transferring some assets to them. It is important to understand that this can include your pension.

If you find yourself in this situation, then knowing exactly how your pension may be treated in your divorce settlement and what your options are for protecting the pension wealth you have accumulated is critical.

In this article, we will cover some of the key questions people often have about splitting pensions in a divorce, including what happens to your pension on divorce, how much of your pension your former spouse may be entitled to and what you can do to protect your pension after divorce.

While we hope this information will be helpful for anyone dealing with a divorce with a pension, please note that it should not be taken as specific legal advice. Every situation is unique, so we strongly recommend speaking to an expert in divorce and pensions at an early stage to put yourself in the best possible position.

If you would like immediate advice on dealing with pensions in divorce, please contact a member of the family team at IBB Law on 03456 381 381 or email enquiries@ibblaw.co.uk to set up a meeting.

What happens to my pension on divorce?

Exactly what happens to your pension in divorce will depend on your circumstances. While the value of your pension and/or current pension income (if you are already receiving this) will be counted as part of your assets for the division of finances, this does not necessarily mean that your ex-partner will need to be given some of your pension.

There are three main ways that a pension can be dealt with in divorce. These are:

Pension sharing

This is one of the most common ways to deal with pensions in divorce settlements. It involves transferring a share of your pension pot to your former spouse. They can then use this to set up their own pension.

The advantage of this is that it means both spouses have their own separate pensions and you can make a clean break, cutting all financial ties between you. The disadvantage is that you will be left with a smaller pension pot and, ultimately, a lower pension income.

Pension offsetting

If you are keen to preserve the value of your pension, then you can use this method to offset it against other marital assets. So, for example, your spouse may get to keep the family home while you get to keep your pension. You can use pension offsetting to protect your entire pension pot or to reduce the percentage of your pension pot that you need to share with your former spouse.

The advantage of this approach is that it can allow you to keep your pension intact, protecting your future financial security. The downside is that you will normally be trading an asset with a known value, such as your home, for an asset where the future value could end up being less than you anticipate, depending on market conditions at the time you start drawing your pension.

You will also need to carefully consider whether protecting your pension income is more valuable than the loss of whatever assets you are trading. For example, if you would need to take out a mortgage to buy a new home, will the mortgage payments be greater than the amount of pension income you would have lost if you shared your pension with your former spouse instead?

Pension earmarking

This is an option that is now rarely used as it means the financial link between the former spouses will be maintained on an ongoing basis. Essentially, pension earmarking means that you will agree to give your ex-partner a percentage of your pension income, either indefinitely or for a fixed amount of time.

Pension earmarking must be very carefully considered. One advantage is that it allows you to maintain ownership of your full pension pot, with only the income being split. However, it means you stay financially connected to your former spouse, which is rarely desirable.

How much of my pension is my ex entitled to?

Many people believe that all of their assets must be split 50:50 with their former spouse when getting divorced and worry that this may apply to their pension as well. While an even split of assets is the theoretical starting point for dealing with finances, including pensions, on divorce, in practice, things are rarely so clear cut.

Ultimately, exactly how your assets are divided will depend on your personal circumstances. If a court is making a decision, it will look at factors including the income and assets of each party, the standard of living enjoyed during the marriage, the length of the marriage and the reasonable needs of each person. These factors should also guide you when deciding the division of assets privately e.g. through negotiation or mediation.

The question of how much of your pension your ex-spouse is entitled to will therefore come down to what sort of division of your overall assets you can agree or that a court orders, and how you or the court decide to deal with your pension as part of that division of finances.

The key thing to understand is that your spouse will not necessarily be entitled to half of your pension (as you may have heard) and you should not make any assumptions about the division of assets, including your pension, without first speaking to an appropriate legal expert.

How do I protect my pension from my ex?

There are various steps you can take to protect your pension during divorce. Below are three of the most commonly used options. Something that you must bear in mind is that you should not, under any circumstances, attempt to hide your pension assets from your former spouse. It is a requirement to make a full and frank disclosure of all your assets during divorce, with the potential for serious consequences if you fail to do so.

Pre-nuptial and post-nuptial agreements

While this requires a degree of foresight, making a pre-nuptial agreement before you marry or a post-nuptial agreement after you marry can be an effective way to protect your pension in advance. Such an agreement can allow you to specify how your pension would be treated during a divorce, including that you would keep the entire pension pot and income.

There are strict rules for pre-nuptial and post-nuptial agreements, including that they must be fair to both parties and any children. It is therefore essential to seek specialist legal support to draft the agreement and to review it if you need to rely on it during divorce proceedings.

Pension offsetting

As covered above, pension offsetting allows you to retain your whole pension or a greater proportion of it by letting your former spouse keep a larger share of other assets. This can therefore be a very effective option to protect a pension after divorce.

Clean break order

When getting divorced and making a financial settlement, something that is almost always advisable is to apply to a family court for a ‘clean break order’. This is a court order that legally severs the financial connection between you and your former spouse.

Something many people do not realise is that simply getting divorced or making a financial settlement does not end this connection. If you do not get a clean break order, your spouse could theoretically make a claim against your income and assets in future, including your pension. Securing a clean break order is, therefore, not something you can afford to overlook.

Your solicitor will be able to advise you on the process for securing a clean break order and make the necessary application. If you have agreed a divorce settlement amicably, this can be done alongside applying for the ‘consent order’, which is a court order that makes a voluntary agreement legally binding. If a court has made a ‘financial order’ deciding how your finances should be resolved, you can ask for a clean break order as part of this process.

How IBB Law can help with divorce and pensions

The Family team at IBB Law can advise on all aspects of divorce financial settlements, including pensions. Our experts can help to ensure your pension assets are protected, giving you lasting financial security.

You can rely on our expertise, which has been independently recognised by leading client guides Chambers & Partners and the Legal 500. Our lawyers have strong skills in negotiation, alternative dispute resolution and court proceedings, so can give you the best chance of getting an outcome that suits you in the right way for your circumstances and priorities.

To discuss how we can help to protect your pension after divorce, please contact a member of the family team at IBB Law on 03456 381 381 or email enquiries@ibblaw.co.uk to set up a meeting.