When it comes to divorce settlements your pension rights form part of your assets and have to be taken into account within any financial settlement. This also applies in the formal dissolution of a civil partnership.
There are three options available when dealing with pension rights in divorce:
- Pension offsetting - offsetting the pension rights against other income/assets so neither party is disadvantaged. It can often be difficult to share the assets fairly when using this method due difficulty assessing the value other assets and the often fluctuating value of a pension pot.
- Pension earmarking - arranging for part of the pension in payment to be paid to the other party. These earmarked payments don't start until retirement and stop on death leaving the ex-partner without income. This option is often avoided due to the delayed receipt of benefit and goes against the courts preferred 'clean break' approach to divorce.
- Pension sharing - splitting the pension at the time of the divorce so that both parties have their own pension pot for the future. The court will issue a Pension Sharing Order which states the percentage of the pension which is to be given to the ex-spouse or ex-partner, the actual value is calculated on the day prior to the Pension Sharing Order takes effect. The pension awarded to the ex-spouse or ex-partner is called a pension credit and can remain in the current pension scheme or transferred to another pension scheme.
Both parties in a divorce will need to provide the value of any pension benefits, this information can be obtained from the pension provider.
There will also be a need to take into account the state pension and how this will be affected by a divorce:
- Basic State Pension - it may be possible to use the national insurance contribution record of the ex-spouse or ex-partner to help increase the basic state pension of the other party. This won't affect the ex-spouse or ex-partners basic state pension however if the other party remarries before state pension age they will lose this right.
- Additional State Pension - the court can also consider this as a financial asset and it can be shared in a financial settlement or a through a pension sharing order.