It’s a common question when discussing divorcing couples: what happens to the house? But its clear from recent reports across the industry that not enough couples are thinking: what happens to the pension?

According to Family Court statistics, between January and June 2023 there were 53,489 divorce applications made but as we reported recently, data by Legal and General found that only 1 in 5 divorcing couples consider their pension as part of their settlement. This means that of the applications made in the first half of 2023 only around 10,600 would have included provisions relating to pensions, potentially leaving one partner at a significant financial disadvantage.

Why include pensions in your divorce settlement?

Aside from the family home, pensions are often the most valuable asset a couple has and should be included in the financial settlement following a split. Often being the main carer of the children or the home during the marriage can mean that one spouse has little or no independent income and in turn has amassed a much smaller pension pot. This will have to be taken into account when reaching a financial settlement.

While in this case it is often agreed that the financially weaker spouse takes the house and the stronger keeps their pension, the repercussions of such a decision may not be felt until later in life, should they come to retire and have a considerably smaller pension pot on which to run the house (if anything at all).

The decision to forego any claim to pensions in order to retain the family home may work in some circumstances, but in many cases the financially weaker spouse does not fully appreciate what they are giving up, particularly long-term.

How can pensions be dealt with during divorce?

Pensions can be dealt with in several ways:

• Pension Sharing: one spouse is given a percentage share of the other spouse’s pension fund, that’s transferred into their name.
• Pension offsetting: the value of the share of the pension fund is offset against other assets, such as the family home.
• Lump-sum payment: one spouse receives a tax-free lump sum from the pension pot when your ex retires.

Whilst the State Pension is generally not shared between divorcing couples, there are complex rules around National Insurance contributions and protected payments.

Each couple’s finances are unique, and each pension splitting option has its positives and negatives, therefore it is best to obtain independent financial advice to figure out which option is best for your circumstances.

Protecting your pension

Understandably, if you have spent your working life building up a substantial pension, you are likely to want to maximise your return as much as possible and reduce the impact of the divorce on your pot. There is no statute of limitations on when your ex can make a claim on your pension if you do not have a financial settlement order in place.

Therefore, in order to avoid complicated legal proceedings and claims on your pension years after your divorce is finalised, it is important to formalise all financial agreements (such as which pension splitting option you choose) with a financial settlement order. An experienced family law solicitor will be able to discuss the best option for your circumstances and ensure that you receive the best overall outcome for you and your financial future.

Expert advice

The Family Law Solicitors at Sweeney Miller, led by Partner Rebecca Cresswell, regularly deal with a range of issues including divorce, separation, Civil Partnership dissolutions, together with the wider complexities following a split such as dividing assets, the family home, pensions and of course any arrangements for the children. It is important that you have a family law expert on your side who not only understands your situation but can clearly explain the process as you go through it.

We work closely with our network of finance experts such as Chartered financial planners, actuaries and accountants to ensure you understand fully what will happen to your pensions following a split, ensuring that your future needs are met. Using our combined legal and financial experience, we will work with our network to help you decide how best to reinvest or reaccumulate any funds that may have been released in a financial settlement as part of the divorce.

Get in touch

With our experience and expertise, the Sweeney Miller Family Law team aim to achieve the best outcome in your circumstances, ensuring you have provision for the future or protecting what you have built up over the years.

To speak to a member of the team about your situation, get in touch for a free 30-minute consultation by emailing enquiries@sweeneymiller.co.uk or calling 0345 900 5401.