Divorce Finances - Pensions

It is extremely important when dealing with divorce finances, pensions are dealt with. Once the Decree Absolute/Final Order is made, then the other person will not normally be entitled to any of the spouse/partner or widow's rights under the pension scheme.

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Dealing with Pensions

Where do you start with pensions?

The starting point for assessing a pension is the Cash Equivalent Transfer Value (CETV, for short). However, this may then be subject to a deduction depending on how long there is to go before the pension can be drawn down. Equalising pension entitlement is rarely a simple calculation, given different ages and/or life expectancy.

How are pensions accounted for in a Divorce or Dissolution?

There are various ways a pension can be taken into account when a divorce/dissolution settlement is being finalised as follows:

  • Offsetting - The value of the pension is offset against other assets with the holder of the pension effectively buying out the other person's interest
  • Pension splitting/sharing - For petitions issued on or after 1 December 2000 the value of the pension can be divided between the parties in whatever proportion is agreed or assessed. The main pension holder retains their pension fund, but with a reduced value. The remainder is transferred either into an existing or new pension fund for the other person
  • Pension attachment/earmarking - For petitions issued on or after 1 July 1996 it has been possible to divert the benefit of a pension once it is in payment, including a portion of any lump sum draw-down. It has also been possible for all or part of any death benefit to be paid out to the other person. The main pension holder is still liable for all of the tax on the pension as though it were theirs.

Pension schemes are entitled to charge for the costs of implementing either pension splitting or earmarking Orders. There is usually a minimum amount, irrespective of the amount being dealt with, and higher charges for more complicated arrangements.