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Glossary
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Divorce and pension rights

Divorce, Pensions, and Pension Rights

The issue of pension rights will be a concern to a growing number of couples in the UK as divorce rates sadly continue to soar. One of the more significant effects of divorce is the serious consequences for any pension provisions made by ex-spouses or spouses who are soon to be divorced. This is especially true if you are not the main wage-earner, who is usually the wife. Although your pension may be one of the last things you consider when your marriage ends in a divorce, there comes a point where you will need to think about:

  • your pension rights

  • what to do with the pension savings you have amassed over the years

  • when divorcing, how to split your pension satisfactorily

The rules governing pension rights in divorce can be found in the Pensions Act 1995 and the Welfare Reform and Pensions Act 1999.

The distribution of your pension

In a typical marriage, the husband is usually the main wage-earner who has the opportunity to accumulate a pension scheme for himself and his family. The partner, usually the wife who stays at home to bring up the family, may have fewer opportunities to make provisions for her own pension. As far as pension rights are concerned, when divorce occurs in a typical marriage as described above, there are three main ways of sharing the value of pensions:

1. Allocation of assets

One way of 'sharing' a pension is to follow the rules set out in section 25 of the Matrimonial Causes Act 1973. Instead of actually splitting up pensions, the law courts may order the family home to be awarded to one partner, usually the wife, especially if there are the needs of dependent children to consider. With pension rights and divorce, as there is usually a considerable amount of equity held in the family home, the courts may order an exchange whereby the wife may retain the family property in return for allowing her spouse to keep the entire value of the pension.

2. Pension earmarking

Earmarking involves the process of allowing a percentage of the pension to be given to the spouse when the named pension fund holder reaches retirement. The system of earmarking was developed under the Pensions Act 1995 to address pension rights and divorce. For instance, if the husband has amassed a pension equivalent to £50,000 held in his pension scheme, the court may put aside or earmark a portion of any future pension benefits for the wife.

The earmarking order also applies to any lump sum as well as payments in pension. There are, however, two main disadvantages to earmarking as far as pension rights are concerned:

  • If the husband dies, the wife could lose the benefit of any earmarking order.

  • The earmarking order will continue to bind both husband and wife uncomfortably together after their marriage has ended.

3. Pension splitting

Pension splitting was established with the Welfare Reform and Pensions Act 1999 to provide for pension rights. On top of the court's power to create earmarking orders, it may also instruct a pension provider to divide or split pensions, at an agreed fixed date, in order for both husband and wife to have their own separate and independent pensions.

The benefits of pension splitting are useful for the partner, usually the wife, in a typical divorce relationship as:

  • She is able to make her own pension provisions without having to wait for her ex-partner to take pension benefits.

  • She will not lose this pension should her ex-husband pass away before reaching pensionable age.

The key benefit for the husband is as follows:

  • The wife will not benefit or be able to claim any further pension contributions made by her ex-husband, allowing him the freedom to re-establish his own pension provision.

Some important points about divorce and pension rights

  • Remember that the law does not discriminate when it comes to pension earmarking or pension splitting. In a marriage (and subsequent divorce) where the value of the wife's pension is worth more than that of the husband's, the law could lean in favour of the husband, allowing him the larger portion.

  • As far as pension rights and divorce are concerned, there is also no legal requirement to divide a pension equally between the two parties.

  • Pension splitting is calculated on the basis of percentages. The percentage to be transferred from husband to wife or vice-versa will be assessed individually.

  • Pension sharing is not compulsory; no one is automatically entitled to his or her spouse's pension when a divorce occurs.

  • When considering pension rights, many people share the delusion that divorced couples are entitled to 50% of everything; this is not always true in the case of pensions.

Learn more about pensions

 
 
 
 
 
 
 
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