Pension Awareness Week: how to tackle the topic of pensions during a divorce?

According to National Family Mediation (NFM), which helps families to sort arrangements for children, property, finance and other important matters following separation or divorce, disagreements over pensions and finance feature in around 20% of cases that they deal with.

While the charity says that most people want to keep things as amicable as possible during the divorce process, where tensions are already running high and valuable assets at stake, people may need some additional support to work things out – especially as the cost-of-living crisis continues.

Here NFM’s CEO, Jane Robey, offers some insight into what happens to pensions when you divorce, and how couples can tackle the topic without causing conflict.

Her advice coincides with the start of this year’s Pension Awareness Week, which aims to raise awareness about retirement planning and to help people take charge of their long-term savings.

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“Divorce can be a very difficult time for everyone involved,” Jane explains. “It’s not uncommon for emotions to run high, especially when there are difficult conversations to be had around who gets what, and particularly as the cost-of-living crisis takes hold. People are understandably worried about their financial security both now, and in the future.

“Even though you may be some years away from an age where you can access pension funds, these still count as assets during a divorce, just like money you might have in a bank or savings account.

“ A pension can be a valuable asset (sometimes the most valuable asset) which has been built up during your time together. Depending upon the length of your marriage and your ages, you will need to consider your income in retirement.

“Even though you may be some years away from an age where you can access pension funds, these count as assets, just like money you might have in a bank or savings account.

“It’s hardly surprising though that financial issues are one of the biggest reasons for fall outs, and certainly one of the most common issues that we encounter in family mediation.”

It is often a shock to people that they have to take into account pensions in divorce but this forms part of making full financial disclosure to achieve a financial order when you divorce.”

Jane explains that a pension pot is a term to describe the combined pensions of both parties and there are several ways that couples could look at dividing these.

“There are a few ways couples who are divorcing can share the pension pot one is Pension Offsetting, this is where the value of any pension is offset against other assets. An example of this might be one person receives a larger share of the family home in return for the other being able to keep their pension. 

“Pension Sharing is another option, where you could share all, or a percentage of your pension with your ex-partner. This amount can be transferred into the other party’s name (into an existing or new pension scheme). This would allow the person receiving the pension to be able to control it and choose when and how to use it.

“Finally, you have what is known as Pension earmarking/attachment orders. This option means that one partner can pay a portion of their pension income to the other partner when it begins to be paid.  This could be either part of the pension income or the lump sum.”

According to Jane, many people choose to mediate over pensions to agree a fair split. She added: “Of course both parties will have different ideas of what is fair at the start, but family mediation can help couples to agree on how to split finances, including what happens to the pensions.

“Some people might be tempted to ‘have their day in court’, but that can be very costly, stressful and take far longer due to the backlogs in hearings taking place.

“It is also important to note that before applying to court you will need to attend a Mediation Information and Assessment Meeting (MIAM) anyway – this provides you with an opportunity to find out if mediation could help in your case. In most cases mediation can help you reach agreement.

“For those that choose mediation, the Family Mediator will document what you have agreed and will create a memorandum of understanding, documenting the decisions made.  This document can then be taken to a solicitor to be made into a legally binding court order which is based on what you agreed during mediation.”  

But what if you cannot agree?

“If you have tried mediation but still been unable to reach an agreement your mediator will be able to issue you with a certificate to apply to court,” Jane explains.

“If you cannot agree during mediation on a fair way to split your pensions and other financial assets, then you can ask a court to make a financial order. The court will then decide how your assets will be split, giving you far less control over the outcome than trying to reach agreement through mediation.

“Judges base their decision on many factors, such as how long you have been married, or been in a civil partnership, your age, ability to earn, your role in looking after the family ie. if you were the main earner or caring for the family etc.

“The judge will then decide on the fairest way to divide your assets taking account of your needs and the assets you have available to divide, which will include your pensions.”

Jane concludes: “It can very difficult when a relationship ends, and people find themselves going from a two-income household, with two pensions, to having to manage everything alone.

“Of course people want to try and fight for every penny they can get, but causing conflict throughout the divorce process can be incredibly detrimental to the financial and emotional health and wellbeing of everyone involved. Especially children.

“Pensions provide us all with a sense of security for the future, and it’s important that couples have the support needed to help separate the funds in the best way possible.”