Legal Matters: What happens to your pension if you get divorced?

As divorce lawyers, we are often asked about what happens to pension savings, writes Naeema Sajid.

Increasingly one of the most valuable asset(s) in a divorce are pensions. This is particularly important in long term marriages and where one party has a significantly larger pension pot than the other.

In recent years we have seen a number of high profile court decisions relating to pensions, all focussed on achieving the ultimate outcome – fairness.

When entering a marriage we don’t consider the financial consequences of a later separation or divorce, let alone how we will support ourselves in our retirement. Yet it can be the most emotive issue in negotiations for settlement or court proceedings.

It is often the party who was less financially astute who suffers; not having made adequate provisions for their retirement because they gave up working for the benefit of the family or because they failed to seek appropriate financial advice.

Historically that has been women, with recent research showing that fewer than one in ten claim to wanting a fair share of their spouses pension. It’s also often this party who is most vulnerable and mostly likely to suffer financial hardship as a consequence perhaps not realising that they have entitlement to a share of their spouse’s pension, with seven in ten couples failing to consider the relevance of pensions during divorce proceedings.

What can be done to address this?

Knowledge is key: The Family Law (Scotland) Act 1985 enables the court to make pension sharing orders. To allow the court to do this parties require to provide the court with valuation of their respective pensions. These valuations require to be prepared for divorce purposes in Scotland. Differing provisions apply in England and Wales.

The valuations require to be closely scrutinised to ensure the correct value has been attributed to the period of the marriage. Each valuation will differ depending on the individual circumstances and allowances can be made to achieve a fairer outcome, which may result in an unequal split. Therefore, professional advice is highly recommended and can prove to be essential; ill prepared negotiations or court pleadings due to lack of professional input can prove to be fatal.

The party receiving the pension share will require to make arrangements as to which scheme the sums are to be transferred into.

A pension sharing order, whether granted via a court order or agreed extra judicially and formalised in a legally binding written agreement, can make all the difference to the most vulnerable of individuals. With the introduction of lump sum withdrawals at the age of 55, it also provides flexibility, providing more options and if invested well, more opportunities in later years.

Lastly, a pension sharing order can only be implemented once a divorce decree has been granted and extracted. Therefore, it is essential to complete the process and not leave things to chance.

Can we help you?

Naeema Sajid is an Edinburgh-based Partner in our national Family Law team.

Click here if you would like to speak to her.