With the introduction of workplace pensions, pension benefits are fast becoming one of the most valuable assets that will need to be taken into account on divorce. Even if you have not contributed to a pension during your relationship, this does not disqualify you from making a claim against your spouse’s pension.
Although some struggle to understand fully the complexity of the pension system, the pension freedoms introduced in 2015 mean that it is even more important to ensure that pension benefits are not overlooked.
Every year, there are statistics showing the number of people who divorce without sorting out their family finances. However, the statistics in relation to resolving the division of pension benefits are even worse.
A 2017 study by Scottish Widows shows that more than 56% of people asked would fight for a fair division of a jointly owned property. Only 9% would ask for a fair share of the matrimonial pension pot. It is alarming that many overlook pension benefits on divorce.
In many instances, the value of the pension pot may well exceed the equity in the family home. Surprisingly, it seems that more people are concerned about who gets the family pet (13%) compared to achieving a fair pension division (9%).
Whilst the court’s powers in relation to the sharing of pensions are nearly 20 years old, they are, never-the-less, very important. The Scottish Widow’s study estimates that up to £5,000,000,000 worth of pension benefits are lost every single year by divorced women.
Can my ex-wife get my pension?
If you are divorcing and the application for the divorce (previously called a divorce petition) was lodged with the court on or after 1st December 2000 then, yes, your spouse is able to ask the court to make a pension sharing order. This is assuming the court hasn’t previously been asked to make a clean break order, which brings to an end all financial ties with your ex-spouse.
Divorce lawyers will need to ascertain the value of both you and your spouse’s pension pot by asking you for the cash equivalent transfer value (CETV). This is the amount that you can take from the fund and transport into a different fund.
The figures, very often, can seem to be huge. But remember, that figure needs to be large because it needs to be sufficient enough to provide you with an income to last you your lifetime.
What are the options for sharing my pension with my ex-wife?
Sharing: this is a formal agreement to divide your pension assets at the time of the divorce. The court will award your spouse a specific percentage of your divorce and your spouse is able either to become a member of your pension provider’s fund (known as an internal transfer) or transfer that percentage to a new pension provider (an external transfer).
Offsetting: the value of your pension fund is offset against other assets of the marriage.
Earmarking: all or part of your pension is earmarked to be paid to your spouse when you start to draw your pension benefits. There is no legal transfer of ownership.
Most divorcing couples go for the pension sharing option. It is seen only to be fair that a pension should be shared in this way when a pension is the largest or second largest asset most husbands and wives have.
The percentage which you lose is called the pension debit and the percentage which your spouse will receive is called the pension credit.
So can my pension pot be shared?
Yes, if it is:
an occupational pension scheme;
a personal pension;
a stakeholder scheme;
a Section 32 policy;
a retirement annuity contract;
a free-standing AVC;
an employer-financed retirement benefit scheme or unapproved scheme;
a contracted out benefit scheme state second pension (S2P); or
a SERPS (state earnings-related pension);
AND any of the above even if they are already in payment.
However, the basic state pension cannot be shared nor the new state pension nor any pension pot that you already received as a spouse.
So, briefly, the answer is yes, your ex-wife can get her hands on your pension, if you haven't yet obtained a clean break order.