How are finances split in a divorce?

Divorce can be a stressful and emotional process, especially when it comes to dividing your financial assets. In this article, we'll explain how finances can be split in a divorce in the UK, and what you can do to protect your retirement savings.

What are the rules for splitting finances in a divorce?

There are no fixed rules for how finances are split in a divorce. The law gives courts discretion to decide what’s fair and reasonable in each case, taking into account factors such as:

  • the income, earning capacity, property and other financial resources of each party;
  • the financial needs, obligations and responsibilities of each party;
  • the standard of living enjoyed by the family before the breakdown of the marriage;
  • the age of each party and the duration of the marriage;
  • the contribution made by each party to looking after the home or caring for children;
  • the conduct of each party, if it’s so bad that it would be unfair to ignore it; and
  • the value of any benefit (such as a pension) that one party will lose as a result of the divorce.

The court will try to achieve a clean break between the parties, meaning that they’ll have no financial ties to each other after the divorce. However, this may not be possible in some cases, for example if one party needs ongoing maintenance or if the couple has young children.

How are pensions split in a divorce?

When you get divorced, you have to declare all of your assets so they can be valued and divided fairly between you and your former partner. After property, a pension is typically one of the most valuable assets you’ll own.

You and your former partner’s pensions are assessed and included in your financial settlement. So you’ll need to find out the total value of all your pensions, including any personal or previous workplace pensions. Depending on your age and circumstances, you may also need to consider your State Pension.

What factors affect how pensions are split in a divorce?

How your pension is divided depends on factors such as:

  • where you live in the UK;
  • whether you’ve begun a separation; and
  • how long you’ve been married.

Once your pensions have been assessed, there are several ways to split them. The rules for each will vary depending on where you live. In England, Wales, and Northern Ireland, the total value of both parties’ combined pensions will be taken into consideration. This includes amounts saved before your marriage. In Scotland, only the pension amounts saved during your marriage are included in the settlement.

Your options also depend on whether you’re currently separated, or in the process of divorce. When separated, you may be able to start claiming benefits from your former partner. You’ll need to start the divorce process before you’re eligible for things such as a financial settlement.

There are three main ways pensions can be split in a divorce:

Pension Sharing Order

A Pension Sharing Order (PSO) states how much of a pension the ex-spouse or partner is entitled to receive. Financial information from both partners is needed to calculate the amount of a PSO. This considers age, earnings and other factors related to your finances. The person receiving the split portion can transfer it to a pension of their own, or in some cases join the original pension scheme.

Pension Offsetting

Pension Offsetting uses the value of your pension to offset other assets, like property. This might be relevant if only one of you has a pension or a larger pension than the other. For example, you could keep your pension while your former partner is awarded a larger share of another asset, like a shared home. With this option, the person without the pension cannot make a future claim on their former partner’s pension.

Pension Attachment Orders and Earmarking

A Pension Attachment Order pays some of your pension to your former partner when you begin withdrawing. You can access your pension from the age of 55 (rising to 57 by 2028). This means that one partner is reliant on the other to begin drawing their pension before they can gain access to their share.

The pension policy will still be in the original owner’s name, but their scheme must make sure that the correct amount is kept aside to pay out to their former partner. This is the part of the pension that’s been ‘earmarked’.

Pensions are split in different ways depending on where you live. In England, Wales and Northern Ireland, the court can order one or a combination of the following:

  • all or part of an individual’s pension income be paid to their ex-partner;

  • all or part of their pension tax-free cash be paid to their ex-partner; or

  • all or part of their lump sum upon death be paid out to their ex-partner.

The main difference in Scotland is that the order can only include one or both of the individual’s tax-free cash, and any lump sum upon death.

The best option for splitting pensions will depend on your individual circumstances and preferences. You should always seek professional advice from a solicitor or a financial adviser before making any decisions about your finances in a divorce.

Find out how PensionBee can help with pensions in a divorce.

Learn more on The Pension Confident Podcast

Wondering how your relationship impacts your personal finances? In episode 14, our guests discuss cohabitation, common law marriage, divorce and more. You can also watch the episode on YouTube or read the full transcript.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

Last edited: 06-04-2024

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