What happens to your pensions when you divorce?

We explain how pensions are treated during divorce and the options available to help you secure a fair settlement below.

Divorce can be a stressful time, involving practical steps that can affect your future financial security. What happens to your pensions when you divorce plays a crucial role in any settlement agreed upon.

In this article, we will look at how agreements can include pensions and, in most cases, should do so.

What happens on separation?

It is normal that during a separation, you focus on the family home and the day-to-day costs of moving forward. Long-term savings, which include pensions, often feel less urgent.

As such, they tend to be left out of any conversation. The financial strain of a divorce and setting up a new home can add another layer of stress.

However, after property, pensions are often the most valuable assets the couple have. If full consideration of your pensions is not given, the budgetary impact may be immediately obvious.

Furthermore, the process can affect women more than men. This can be due to career breaks or lower earnings.

As such, less funding has been available for her pension planning. The key is understanding why pensions are often overlooked and what happens to your pension when you divorce.

Marital assets include pensions

Pensions somehow feel personal. Subsequently, many couples hesitate to raise the subject when discussing a split of their assets.

However, pensions are often the most valuable assets after the family home. As such, dividing these pensions fairly is important.

However, recent figures show that only 20% of divorcees took pensions into account when dividing their assets. Furthermore, 29% chose not to accept a share of their partner's pension.

Many people are unaware of what their true entitlement is. Consequently, they fail to obtain a fair settlement.

This is particularly true with what happens to your pensions when you divorce. Also, this affects women more than men, as they often waive their rights to their partner's pension during divorce.

They also see their income fall after divorce. As such, it becomes harder to save for their retirement.

Why are pensions forgotten during divorce?

Divorce can bring pressure and uncertainty. Furthermore, urgent decisions quite often need to be made.

It is normal that housing seems the most urgent concern. This is particularly true for divorcing parents.

Family comes first, so decisions on where the children will live and affordability take priority. What happens to your pension during divorce takes a back seat.

Pensions seem part of the future and may not form part of more pressing matters. Emotions are also running high, and as a result, informal agreements may be put in place.

An example may be that one person keeps the house and the other keeps the pension. However, without careful consideration, this type of decision may have a dramatic financial effect in the future.

Pensions can also be difficult to compare. Many people have several pensions built up over many years through different employers.

Furthermore, public sector pensions may be more valuable than they first appear. Also, some people may never have dealt with pensions before.

As such, the whole experience can prove overwhelming. Taking your time with a step-by-step process and seeking professional advice is crucial.

Pensions should be part of the conversation

Discussing what happens to pensions when you divorce may be uncomfortable. However, all you are trying to do is obtain your fair share.

Furthermore, understanding your needs for long-term financial security is especially important. The aim of pensions is to provide long-term income, and for many people, they provide independence and stability in retirement.

As such, what happens to pensions when you divorce should be part of the conversation. As a result, your future needs are taken into consideration rather than just the pressure of the present.

How are pensions split?

Pensions are a joint asset. Consequently, they are normally split equally during a divorce.

However, that basic rule does not always apply. The final settlement can vary depending on numerous factors, such as how many children the couple have, their individual financial means, how long the marriage lasted, their health and ages, and their marital contribution.

There may be other factors as well, so careful consideration is always wise.

What happens to your pensions when you divorce? The different options

Once an agreement is in place, there are various options for what happens to your pensions on divorce. The three most common are as follows.

Pension sharing orders are the most common. This provides a straightforward way to support long-term financial independence.

The sharing order transfers a percentage of one person's pension to the other person. The payment is made to a pension plan, so if you do not have a pension, you will have to set one up to receive the transfer.

Pension offsetting involves balancing pensions against other assets. An example would be where one person keeps the family home while the other retains more of their pension.

Accurate valuations are essential for this type of agreement, including future valuations.

Pension attachment orders are less common. However, such an order pays part of one person's pension income to another person.

The reason this option is less common is that a link between the parties remains. One person's income is reliant on the other person's retirement choices.

There are other options available. However, the three options above are the most common.

Good practice for deciding what happens to your pensions when you divorce

Understanding and dealing with everything all at once is not essential. Divorce is an emotional time, so remember that small steps can make a dramatic difference.

The first step is the hardest. However, whether we have any pensions is a good question to start with.

From there, obtain up-to-date valuations from the pension providers. Discuss and consider the different options for sharing the pensions.

Take expert advice and consider future income needs, not just the present day.

What happens to your pensions when you divorce? Concluding summary

Going through a divorce is never an easy time. However, making decisions in haste can have massive long-term consequences for both parties.

Taking your time and seeking professional advice is always a good idea. Also, although it may be difficult, asking what happens to your pension during divorce can play a crucial part in your long-term financial security.

Find a financial advisor who can help you understand your options during divorce.