Pensions can be one of the most valuable assets owned by individuals and when going through a divorce, those pensions can be shared or factored within.

Pension sharing orders are a popular option when dealing with the distribution of pensions on divorce or dissolution of a civil partnership, as they offer a clean break for individuals, whilst allowing for a valuable asset to be distributed.

What is a pension sharing order?
A court order defines the share of an individual’s pension is transferred to a former spouse or civil partner at the time of divorce or dissolution which is then legally transferred to them.

The order must be made by the court as without this pension providers and schemes cannot share or transfer any pension.

It is important to note that pension sharing orders are not available to those who have simply cohabited, and they cannot be made on the making of a judicial separation order.

Some pension schemes cannot be subject to a pension sharing order, these include;

1. Schemes in which the only benefits are equivalent pension benefits,
2. Basic state pension,
3. New state pension and pensions that are already subject to an earmarking order,
4. Those subject to a sharing order from the current marriage.

How does it work?
A percentage of one spouse or civil partner’s pension will be ordered to be transferred into the other party’s name.  Depending on the terms of the pension scheme, the party receiving a percentage of the pension may become a member of their former spouse’s or civil partner’s scheme, or they can transfer their pension credit to a new pension scheme in their own name.  This is subject to the pension scheme rules.

The Process
If the parties agree how the pension is to be divided, they can submit a consent order to the court for approval and officially make the order. However, if an agreement cannot be reached, financial remedy proceedings may need to be issued and the court may need to make the final decision as to how the pension(s) is to be split.

Both parties will be required to disclose details about their pension(s). The court will use the most recent cash equivalent value (CEV) of the pension but it may also be appropriate for a pension actuary to be appointed to help determine what an appropriate pension sharing order would look like.

A pension sharing order cannot be granted until the conditional order in the divorce has been made and the order will only take effect once the final order has been granted and the divorce is final.

Why should I obtain a pension sharing order?
Pension sharing orders offer a clean break for the parties, allowing them to be independent from one another. It also allows both parties to have pension provisions in retirement which are unaffected by remarriage, death, or any other change in circumstances by the other.

These orders are also beneficial where one party has a high value pension, and the other assets available for distribution are limited or significantly lower in value. They are also beneficial where one party has been unable to accumulate a pension, or the parties are close to retirement age and will find it difficult to build up a pension of similar value to that of their former spouse or civil partner.

Author: Kayleigh Zmak.