When couples separate, the future of the family home often dominates discussions, it feels very tangible and of course immediate housing needs are important. Often people want to retain the family home, this saves the costs and time of moving and provides stability, usually for the children. This approach removes gender bias. Bringing up children is treated as equally valuable as earning income. Both are contributions that sustain the family and are of equal importance.
Pensions (and retirement needs), by contrast, can seem distant and technical. Yet they are often among the most valuable assets in a long marriage. Ignoring them, or failing to understand their true worth, can create lasting injustice. Most financial remedy orders have no pension sharing provision in them, which reflects the reality that many people are missing out on sharing valuable assets, which the Family Court would order be shared in some way.
This blog explains how pensions are treated in divorce, why they are so complex, and what principles guide the court when dividing them.
Pensions as capital assets
At first glance, pensions appear straightforward. They have a defined or measurable capital value, often shown as a Cash Equivalent Value (CEV) on a statement. That CEV gives the impression of a pot of money that can be compared like any other asset.
But the real value of a pension is how much income it will produce during retirement and for how long. Mark Studdart, a Partner in the Family Team at Gordons Partnership, explains that “for example, one person might have an NHS pension; another might have a private pension. They may have the same Cash Equivalent Value. However, on retirement the NHS pension is much more likely to produce a higher income than the private pension, as well as better tax-free lump sum benefits. Comparing those financial products is a bit like comparing apples and pears because pension products can drastically vary in scope and value.”
Pensions are immensely complicated financial products. The same CEV can lead to very different retirement incomes and benefits depending on the scheme a party is a member of.
Pensions and offers for Pension Sharing need careful handling. Looking only at the CEV without expert advice risks missing their true market value.
Why expert advice is essential
Because pensions vary so widely, Mark indicates that “divorcing spouses should take expert advice about pensions, lawyers will be able to advise about how to obtain that advice and how to ask the right questions”.
Without professional input, parties can be left with settlements that look equal on paper but produce very different realities in retirement. The court system recognises this risk, which is why pensions are treated as central to financial proceedings. To ensure fairness the Court will require parties to jointly instruct pension (and other) experts. Those experts will owe a duty to the Court to report fairly on possible outcomes.
The starting point: equalising income in retirement
Mark explains that “In most cases where there is a marriage of reasonable length the starting point is to aim for equal income at retirement, typically age 67. Sometimes earlier, depending on the scheme. Some NHS pensions, for example, can be taken at 60 with little benefit to deferring”.
This focus on income reflects the practical aim of fairness: ensuring both parties can meet their needs later in life.
Shorter marriages and different approaches
The Court’s approach when the marriage is shorter or when the parties are younger can differ in practice from most marriages albeit the legal principles remain the same. In these situations, the court may look instead at equalising capital values rather than equal income on retirement, or in appropriate cases overlook pension sharing especially if both parties have the ability and time to build up their pension assets in the future, or the Court might overlook pre-marriage assets . Mark elaborates that “Sometimes pensions may even be excluded from the pot if they were built up entirely before or after the marriage”.
In very short marriages, the court may not focus on needs at all. Instead, it may simply look at what each party contributed and let them take out what they put in. The exception is when children are involved, because their needs whilst children will always mean a different outcome.
Why pensions cannot be ignored
The complexity of pensions makes them tempting to push aside, but they are too important to overlook. A settlement that does not deal properly with pensions may seem fair at first, only to unravel decades later when retirement incomes diverge sharply.
Divorcing spouses should take expert advice about pensions, guided by their lawyers, to make sure the right questions are asked. With the right approach, pensions can be divided fairly, ensuring long-term security for both parties.
Moving forward
Pensions are not simple pots of savings. They are future income streams with very different rules and benefits, depending on the scheme. Courts recognise their complexity, which is why they value expert opinion.
For anyone going through divorce, the key message is simple. Do not underestimate pensions. Seek advice, understand their true value, and make sure they form part of a fair settlement. You may need independent financial as well as legal advice. At Gordons, we regularly work closely with financial advisors to ensure clients receive the best and most comprehensive advice.
About the Author
Partner
Tel: 01483 451 900
Email: Mark@gordonsols.co.uk