Why Pensions Can Be Overlooked On Divorce Or Civil Partnership Dissolution - And Why They Shouldn't Be

• Published date: 20 June 2023
• Subject Matter: Employment and HR, Family and Matrimonial, Retirement, Superannuation & Pensions, Divorce
• Law Firm: Weightmans
• Author: Lucy Phipps and Fiona Turner

It is important to obtain early expert advice to assess all options for a settlement, including pensions.

Together with property, pensions are one of the most valuable assets that you and your spouse will own. The Office of National Statistics reported in 2022 that 42% of the wealth held by households in Great Britain is held in pensions.

Yet every year reports are produced by pension providers illustrating a stark fact: women often underestimate the value of pensions, especially on relationship breakdown.

Research carried out by Scottish Widows a few years ago even revealed that many couples were more concerned about losing a pet than seeking a fair share of a pension.

So why do so many people walk away from their entitlement to share the other's pension?

The value of a pension can often be overlooked because it's something that you don't see or think about very often, and because when you separate, a more pressing concern is having somewhere to live. Most people's minds are on having a home and enough money now to run that home. Very few people are thinking about retirement income and pensions.

Some people also wrongly believe that they cannot share in pension assets because they are only realisable later in life.

Pensions are also perceived as being complicated. That can be off-putting in itself, but missing out the pension could lead to you receiving a very unfair divorce settlement.

Please note that this article relates to the law in England and Wales. A different legal regime exists in Scotland and pension shares are approached in a different way.

How are pensions treated when you divorce?

All of your pension funds will be valued, the same as any property, business and savings/investments.

The first stage of your divorce is computation and working out exactly what there is to be shared and divided.

Once that is known, the usual starting point is a 50/50% split of the assets between you. In practice this is rarely the outcome as the family court looks at many factors to see if 50% is fair and if it's going to be meet your financial needs.

Pensions can be shared as part of a final settlement, or their value can be offset against the value of other assets such as property.

What is the value of our pensions?

All pensions have what is known as a cash equivalent value (CEV or CETV). This tells you what the fund is worth in cash terms. However, in many cases, that value is overly simplistic as it does not look at the benefits that are attached to different...