Divorce and Pensions

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Divorce and Pensions

In seeking to achieve a fair division of the parties' assets on divorce, the court will need to consider the effect on one spouse of the loss of an entitlement in the other's pension. Before 1996 the court could only do this by offsetting a potential interest in the pension against other available capital, often an interest in the former matrimonial home. However in long marriages, where pensions can be the most significant asset, there is often not sufficient equity in the former matrimonial home to achieve this.

In 1996 measures were introduced to allow the court to 'earmark' a party’s pension and from 1st December 2000 pension sharing has been possible.

A pension sharing order will be expressed in percentage terms. The pension provider may agree an internal transfer (so that the person benefiting from the pension sharing order becomes a member of the other party’s pension scheme), or may insist an external transfer where the percentage specified by the court is transferred into a separate scheme nominated by the party benefiting from the order (usually after obtaining independent financial advice).

The pension provider is entitled to make a charge for implementing the pension sharing order.

The court also has a discretion to make orders relating to payment of the member’s pension on retirement, the lump sum payable on retirement or on death after retirement or the lump sum payable on death in service, after leaving service but before retirement and after retirement. It can also require a party to nominate the other to receive their death-in-service benefits.

For the order to be effective, the person responsible for the pension arrangement must be given notice of the proceedings, the order and any subsequent change of address of the applicant after the order is made.

Frequently Asked Questions about Divorce and Pensions

How does the court value the pension?

Within divorce proceedings the court will value a pension fund with reference to its 'cash equivalent transfer value' (CETV), that is the amount the pension provider would be obliged to pay on transfer to another fund.

What are the main features of a pension sharing order?

The main features are:

they only apply to post 1st December 2000 petitions although a Decree Nisi can be rescinded by agreement if necessary for any petition prior to that date
they do not apply to judicial separation
they are based on a percentage of the cash equivalent transfer value
the applicant receives a fund carved out of the other party’s pension and is bound by the rules of the scheme if an internal transfer is taken
pension sharing orders are not capable of variation unless the application is made before the order takes effect and before Decree Absolute
they are not affected by the receiving party’s remarriage or the transferring party’s death
they are not available if there is, or has been, pension sharing for this pension arrangement in respect of this marriage for this pension arrangement
they are not available if there is an attachment order for this or any other marriage
the periodical payments element is taxable in the hands of the person to whom the transfer of pension rights has been made
The Community Legal Services' (formerly Legal Aid Board’s) Statutory Charge will not bite against the pension fund either as regards the periodical payments or lump sum element.

What orders with respect to a pension are available within judicial separation proceedings?

Pension sharing orders are not available on judicial separation, only divorce. However the court can make a pension attachment order (previously known as earmarking) within judicial separation proceedings.

Because judicial separation does not dissolve the marriage, widow’s benefits are retained on the death of the other party.

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