We all know what a pension is. Many of us however, overlook the fact that pensions are assets which can be shared on divorce. Indeed, pensions are often one of the most valuable assets in any marriage. So what can be done with them if a marriage or civil partnership breaks down?
There are three main ways in which pensions can be dealt with on divorce, and these are (1) sharing or “splitting” a pension, (2) earmarking or “attachment” of a pension and (3) offsetting.
The first and most common option is pension sharing. This entails the splitting of a pension (or pensions) between the spouses in proportions agreed between them or as ordered by the court. A specified percentage is taken from one pension, and the recipient can then either form a new pension with it or add it to their existing pension fund, depending on the terms of the scheme.
Attachment is where there is an earmarking for the other spouse part of the lump sum and/or monthly payments the pension holder will receive on retirement. Pension attachment is less common than pension sharing, not least because it does not fully achieve a clean break between the parties and remarriage and death can bring payments to an end.
Offsetting is essentially where one party to the marriage keeps all or part of the pension provision whilst the other spouse has a larger share of other assets, often the family home.
In determining the appropriate size, or percentage, of the pension sharing order to be made, principles of family law apply just as they do to other assets: the proposed option of dealing with the pension pot needs to take into account fairness, sharing and checking against equality and meeting the needs of the parties.
Pensions are complex investments and particular factors special to them also must be addressed such as the contributions made to the pension pot by a party outside of the marriage and relationship (before and after). It is sometimes necessary for specialist pensions advice to be provided by an actuary within divorce proceedings but consulting a specialist family lawyer is the best place to start addressing any queries you may have in the event of a potential marital breakdown.