Pension sharing in divorce proceedings

When dividing the matrimonial finances a tricky area can often be how to treat the parties’ pension provision. What is the law surrounding this area?

A challenging part of dividing the matrimonial finances is the issue of how to treat the parties’ pensions. Pension sharing is not the only treatment of pensions – there can be offsetting, sometimes pension attachment or after shorter marriages or where the parties’ pension provision is very evenly matched it may not be necessary to divide pensions at all. However, pension sharing is a common way to divide the parties’ pension provision with a view to creating a fair outcome.

Each case turns on its own facts and the division of pensions are not considered in isolation to the overall treatment of the wider financial picture. When considering how to divide all of the matrimonial assets, including capital, pensions and income, we must consider all of the circumstances of the case and specific criteria set out in statute and case law to achieve a fair outcome.

All matrimonial assets are divided according to fairness. It is important to ensure that the welfare of any minor children is upheld and that key factors such as the parties’ financial resources now and in the future, the length of the marriage, the parties ages and the standard of living during the marriage as well as any contributions and/or lost opportunities are considered.

Just because a pension is held in one party’s name does not mean that the party who has accrued the pension will automatically retain it. The pension is very likely to be a matrimonial asset and so this may need to be shared or off-set. If there is a disparity in pension provision between the parties, especially after a long marriage where one party has not accumulated their own sufficient pension provision, this is likely.

Sharing pension provision correctly often requires the expertise of an actuary to determine the appropriate percentage share and to advise in relation to the outcome that this would create.

Dividing all of the parties’ pensions on a stark 50/50 basis may not mean that there is an equal outcome when the pensions take effect. The actual outcome in real money terms could be a glaring contrast in positions, as actuarial calculations depend upon a number of specific factors including the type of pension, the specific scheme and the parties’ ages.

When seeking overall equality of outcome all pensions in the matrimonial pot will need to be considered and so it may be that some pensions are transferred, some are retained and some are shared (following complex calculations to determine the correct percentage of the pension share) to achieve that outcome. Emphasis should be placed upon how to achieve the desired outcome in a cost efficient fashion.

Pension sharing can be a complicated exercise and when attempted without specialist legal and actuarial advice, there is great risk attached. Without the right advice at the time of dividing the parties’ pensions there would be potential for stark inequality between the parties after their divorce, such as paying out far more to their former spouse and/or receiving far less when the pension takes effect than had been anticipated. Grasping the nettle at this stage could avoid any unpleasant surprises following on from the parties’ divorce, at the time of retirement.