Pension Sharing and Divorce Settlements: How It Works and What to Expect

For many couples, pensions are among the largest assets accumulated during a marriage, sometimes even exceeding the value of the family home. Understanding how pensions are treated in divorce settlements is therefore an important part of protecting your long-term financial security.

This guide explains how pension sharing on divorce works, how pensions are valued during divorce, and what it may mean for retirement planning.

What Is Pension Sharing on Divorce

Pension sharing on divorce is a legal method for dividing a pension between two people when a marriage or civil partnership ends. This is carried out through a pension sharing order issued by the court.

A pension sharing order instructs the pension provider to transfer a specified percentage of one person’s pension to their former spouse or civil partner. This transferred portion becomes a separate pension arrangement in the receiving partner’s name.

How a Pension Sharing Order Works

Once a pension-sharing order after divorce is approved by the court, the pension provider must implement it. The process usually involves:

The court specifying the percentage of the pension to be shared

The pension provider calculating the value of the share

A new pension account being created for the receiving spouse

The transferred pension becoming the recipient’s independent asset

This means each person will have their own pension arrangements going forward. The receiving spouse can usually transfer the new pension to another scheme or keep it with the existing provider, depending on the scheme’s rules.

Who Pays Pension Sharing Order Fees for Divorce?

Implementing a pension sharing order after divorce can involve administrative costs charged by the pension provider. These fees may cover the cost of calculating the transfer value and creating a new pension arrangement.

Who pays pension sharing order fees for divorce varies depending on the divorce settlement. In some cases, the fees are shared between both parties. In others, the cost may be deducted from the pension, with the remainder divided or assigned to one spouse as part of the financial agreement.

Because fees and administrative processes vary between pension providers, it is important to understand how the scheme involved handles pension sharing orders.

What Happens to Pensions in a Divorce

When a couple divorces, all marital assets are usually considered as part of the financial settlement. This can include property, savings, investments and pensions. While pensions are sometimes overlooked during divorce negotiations, they can represent a substantial portion of the overall finances.

Courts in England and Wales aim to achieve a fair division of assets between both parties. This does not always mean a 50/50 split, but it does mean pensions are typically considered when determining how assets should be divided.

Several types of pensions may be considered during divorce proceedings, including:

Workplace pensions

Personal pensions

Self-invested personal pensions (SIPPs)

Defined benefit (final salary) pensions

Defined contribution pensions

The court may consider both pensions accumulated during the marriage and, in some cases, pension benefits built up before the relationship began. The approach taken depends on individual circumstances, including the length of the marriage, each partner’s financial needs and their expected retirement position.

Because pension benefits are often long-term assets, decisions made during divorce can have lasting consequences for retirement income. This is why pensions are increasingly recognised as an important part of divorce settlements.

Other Ways to Divide Pensions

While pension sharing is one of the most common approaches used today, it is not the only way pensions can be considered in divorce settlements. Courts may also consider alternative methods depending on the circumstances.

Pension Offsetting

Pension offsetting involves balancing the value of a pension against other assets in the divorce settlement. For example, one spouse may keep their pension while the other receives a larger share of the property or savings. This approach avoids splitting the pension itself, but it requires careful valuation of all assets to ensure the settlement is fair.

Pension Attachment

Pension attachment orders, sometimes referred to as ‘earmarking’, direct a portion of future pension income to a former spouse when the pension holder begins drawing benefits. Under this arrangement, payments are linked to the pension holder’s retirement decisions. Unlike pension sharing, the recipient does not receive an independent pension, and payments may stop if the pension holder dies.

How Pension Values Are Calculated

When pensions are considered in divorce proceedings, it is important to understand their value. The most common measure used is the Cash Equivalent Transfer Value (CETV). A CETV represents the estimated lump sum value of a pension if it were transferred to another scheme. Pension providers can issue a CETV statement showing the current estimated value of the pension.

Factors Affecting Pension Valuation

Several factors may influence how pensions are valued during divorce proceedings, including:

The type of pension scheme

The age of the pension holder

Contributions made during the marriage

Expected retirement income

Inflation assumptions and life expectancy

Defined contribution pensions are usually easier to value because the pension pot has a clear market value. Defined benefit pensions can be more complex because their value is based on future income rather than a fixed pot of money.

For this reason, specialist actuarial advice is sometimes used in larger or more complex divorce settlements.

How Is Pension Sharing Calculated in a Divorce?

The percentage awarded through a pension sharing order is determined by the court as part of the financial settlement. This percentage reflects what the court considers a fair division of assets. The calculation may consider:

The length of the marriage

Each spouse’s earning potential

The need to provide retirement income for both parties

Other assets included in the settlement

In many cases, the goal is to achieve a balanced financial outcome that considers both immediate needs and long-term retirement security.

State Pension and Divorce

The State Pension is treated differently from private pensions during divorce proceedings. The basic State Pension and the new State Pension generally cannot be shared directly through a pension sharing order.

However, the State Pension may still influence the overall financial settlement. In some cases, entitlement built up during the marriage may affect how other assets are divided.

Under certain circumstances, divorcees may also be able to benefit from their former spouse’s National Insurance contributions under older State Pension rules.

Because the rules around State Pension and divorce can be complex, it may be beneficial to review your National Insurance record and pension forecasts to understand how they apply to your situation.

Impact on Retirement Planning

Divorce can significantly alter retirement plans, particularly when pensions are divided between partners. A pension sharing order after divorce may reduce the value of the original pension holder’s retirement savings while providing the other spouse with a new pension arrangement.

For both individuals, this may mean reassessing retirement expectations and financial plans. Some of the potential effects include:

Changes to expected retirement income

The need to increase pension contributions

Adjustments to retirement age or lifestyle expectations

Reconsideration of investment strategy

Rebuilding retirement savings after divorce may take time, particularly if the separation occurs later in life. However, reviewing pension arrangements early can help you make informed decisions about future contributions and investment choices.

Understanding how pension sharing affects retirement planning can also help ensure both parties maintain financial independence in later life.

When to Seek Professional Advice

Pensions are often among the most complex assets involved in divorce settlements. Understanding how pension sharing orders work and how pensions are valued can be challenging without professional guidance.

You may wish to seek professional advice if:

A significant portion of your assets is held in pensions

You are unsure how pension sharing will affect your retirement income

You need help interpreting pension valuations

You want to understand the long-term implications of a divorce settlement

Financial advisers and pension specialists can help explain how pension sharing on divorce may affect your long-term financial position. Legal professionals and financial experts often work together during divorce proceedings to ensure pension arrangements are understood and handled correctly.

Seeking professional advice can help ensure decisions made during divorce settlements support both short-term financial needs and long-term retirement security.

Frequently Asked Questions

How is a pension split during divorce?

A pension may be divided through a pension sharing order, pension offsetting or a pension attachment order. Pension sharing on divorce is the most common approach, where a percentage of one spouse’s pension is transferred into a separate pension for the other spouse.

Is a pension automatically shared in a divorce?

Pensions are considered part of the overall financial settlement, but there is no automatic entitlement to a specific percentage. The court decides how assets should be divided based on fairness and the circumstances of both partners.

What is the difference between pension sharing and offsetting?

Pension sharing involves transferring a portion of one pension into a new pension arrangement for the other spouse. Offsetting means one partner keeps their pension while the other receives a larger share of other assets, such as property or savings.

How long does a pension sharing order take?

Once a pension-sharing order is issued by the court, pension providers usually have up to four months to implement it. The overall timeframe can vary depending on the complexity of the pension arrangements and how quickly the divorce settlement is finalised.

Can a pension sharing order be changed after divorce?

Once a pension sharing order after divorce is implemented, it is usually final and cannot be changed. This makes it important to ensure that the terms of the order are fair and accurately reflect the intended division of assets before the order is approved by the court. Any errors or disputes typically need to be addressed before implementation rather than after.

Is pension sharing always 50/50 in divorce?

Pension sharing on divorce is not automatically split equally between both parties. The court will consider a range of factors, including the length of the marriage, each person’s financial needs, and other assets available, to determine what represents a fair outcome rather than a strictly equal one.

Can multiple pensions be included in a pension sharing order?

Yes. Under the pension sharing divorce UK rules, if one or both individuals have several pension arrangements, each pension can be considered in the overall financial settlement. In some cases, separate pension sharing order divorce instructions may apply to different schemes depending on how the court decides to divide the assets.

Do I need financial advice on pension sharing in a divorce?

While not always mandatory, seeking advice can be highly beneficial when dealing with pension sharing on divorce. Understanding how pension sharing is calculated in a divorce and how different pension types are valued can help ensure decisions support long-term retirement planning and financial stability.

This content is for general information only and does not constitute legal or financial advice. Pension sharing on divorce is complex and depends on individual circumstances. You should seek advice from a qualified solicitor or financial adviser before making decisions, as pension legislation can change.