Pensions in divorce: preparing for an independent financial future

A pension could be a couple’s most valuable matrimonial asset. As such, it is important that pensions are considered in the financial settlement if a couple decides to divorce or dissolve their registered civil partnership. All the money you’ve saved into it (except for your basic State Pension) will be taken into account when your assets are divided.

It may be that you’re a long way from retirement, and how you’re going to manage then may not seem the most pressing issue. However, it’s important not to underestimate or overlook pensions in divorce and consider how this could eventually impact on your retirement.

What happens to pensions when a couple gets divorced?

People often think that just because they have been married, they are entitled to half of everything – including the pension. That is not the case.

Pensions can be dealt with in a number of ways on divorce. The starting point should always be to find out what pensions there are, what they are worth and how they fit with any other assets such as property, savings and each spouse’s needs for a home and income.

If an adjustment needs to be made to get a fair overall outcome on a divorce, this can be done by one person keeping their pension, but the other getting more of the other assets (called ‘offsetting’); or the court can make a pension sharing order giving a percentage of one person’s pension to the other; or a combination of the two may be needed.

Women are less well prepared for retirement after divorce

According to research for Scottish Widows in 2017, almost half of women (48%) have no idea what happens to pensions in divorce, which may explain why so few couples consider them as part of a settlement.

Overall, women are less well prepared for retirement than men with only 49% of divorced women saving adequately for the future, compared with 59% of men. Nearly a quarter (24%) said they are unable to save anything at all into a pension – twice the rate of divorced men (12%) saving nothing. Furthermore, 40%
of divorced women said their retirement prospects became worse as a result of the split, compared with just 19% of men.

The research showed that even if pensions are discussed during a divorce settlement, women are still missing out.

Plan for your future

Relationship breakdowns can leave people really vulnerable. It is important that everyone – whether single, married or divorced – takes steps to understand their finances and prepare for their independent future should a relationship break down.

Professional guidance and support

There is no substitute for expert legal and professional financial advice. Obtaining the right guidance and support is vital when dealing with pensions (and indeed the other financial assets and issues) in the event of a divorce. Pensions may vary in complexity but can be confusing at the best of times, and the details need to be addressed carefully.