Pensions and divorce – why dividing a pension at divorce can be complicated.
Don’t lose out on the pension when you get divorced; make sure you take advice.

It’s been over ten years since pensions were able to be split (or shared, as it’s called in the jargon) at divorce, but it’s likely that some women are losing out because they’re not getting the right advice. Pensions are complicated at the best of times and some solicitors and financial advisers don’t understand how they can be split and the consequences of getting it wrong. If your husband or civil partner has a large pension you could lose out by thousands of pounds if you don’t get the right advice.

How pensions can be divided
If you want to find out about the basics of how pensions can be split, read my article called why the pension shouldn’t be overlooked during divorce.

SAVVY TIP: The main points of the article are that the pension can be offset (which means that someone gets a greater share of other assets, such as the house, instead of a chunk of the pension), attached (which was previously called ‘earmarked’; it means that the pension isn’t divided until the person whose pension it is retires) or split at the time of divorce.

Steps to take
If your husband/civil partner has a stockmarket linked pension (so it can be a defined contribution pension provided by his/her employer, a stakeholder or personal pension) the process of assessing its value is much more straightforward than if it’s a final salary (otherwise known as ‘defined benefit’ scheme).

• The first step is for the pension to be valued. It’s called the ‘cash equivalent transfer value’ or CETV and it tells you – in broad terms - how much the pension is worth on a particular date.

SAVVY TIP: The person who is in the pension scheme has to ask for the cash equivalent transfer value but the other partner in the couple will find out how much the pension is worth once the Form E is disclosed (in England and Wales – the system is slightly different in Scotland).

• If it’s a final salary pension, the ‘cash equivalent transfer value’ can be harder to calculate. Because defined benefit pensions are based on the salary the scheme member earns when he/she retires or the average s/he has earned throughout their career it’s much harder to work out how much it’s worth at any one time.

SAVVY TIP: Depending on the size of the pension fund and who’s running the scheme it may be worth getting an independent valuation. Some pension schemes have had problems over the way they have valued pensions in divorce cases. “A good actuary should tell you if it’s worth carrying out an independent valuation of a final salary pension,” says Karen Ritchie, who’s an independent financial adviser with FPW and who has developed a specialist qualification for IFAs working in divorce cases (she’s also on SavvyWoman’s expert panel).

Why it can be complicated
If the pension that’s being divided is a defined contribution, stakeholder or personal pension, the main question is whether it should be split or whether it’s better to divide the value of something else (like the house) rather than split the pension.

• If the pension valuation is for a defined contribution/personal pension: ask if it’s invested in what’s called a ‘with profits’ fund, where the return you get is generated by bonuses added every year and at the end of the term. If it is invested in a with profits fund, ask if there is be an early surrender penalty applied called a market value reduction (MVR) or a market value adjustment (MVA).

SAVVY TIP: These penalties are normally applied for a specific length of time but they could significantly reduce the amount that’s left to divide. “If an MVR is being applied, it’s better to try and split another asset rather than the pension,” says Karen Ritchie. “If you split the pension you’ll lose some of its value because of the MVR.”

• If it’s a final salary/defined benefit pension. The scheme may be underfunded. This means there’s not enough money in the pension scheme to pay future pension commitments. This doesn’t mean that the pension scheme will have to close, but it does mean that it’s probably not the best time to split (or share) the pension.

SAVVY TIP: If you receive the pension information about your husband’s defined benefit scheme, ask if the pension scheme is underfunded and, if so, if the cash equivalent transfer values are being reduced to reflect this.

• If a defined benefit pension scheme is underfunded and is offering reduced transfer values as a result it has to let the scheme member’s spouse or civil partner join the pension until its fortunes improve and it’s properly funded. At that point you (as the ex wife of the scheme member) can be asked to leave the scheme.

SAVVY TIP: Independent financial adviser Karen Ritchie of FPW says that some pension schemes that are underfunded are denying that they have to offer a scheme member’s divorcing partner the right to join the pension (it’s called offering ‘internal membership’). It’s definitely worth challenging if the pension is underfunded and that's affecting the transfer values.

Related articles:

Getting divorced; what are the basic rules?

International divorce: what it can mean if you divorce outside the UK

Ask the expert: What do I do with my share of my husband's pension?

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04-02-2011
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Posted by colley dated 2012-09-12 11:15:45
we were divorced here in spain,because we live here and house is here,i got the house and furniture value e182,000,my husband got e70,000 in cash,can i claim off his private pensions in the U.K,can this be done in the U.K OR do i have to do it in spain where we both are,i lived in the U.K for 40 years.
Posted by emma dated 2012-09-23 17:48:31
i am going through a divorce and my husband has a B.A final salary pension he is 51 yrs old is it worth me getting it independantly valued as it is expensive to do this
Posted by Julie dated 2013-02-10 12:47:34
I have a pension split agreement on a final salary pension. I have 30% and my ex is getting the lump sum. This was agreed in 2004. At the time I was told I could not take the pension until I was 65 unless I was terminally ill. Now I have been advised by the authority that I can take it at 60. My husband paid the pension to the maximum. And retired last year at 60. My forecast has come back with a reduction of 24%.How can it be so high when I am part of a whole that is being paid already? could I appeal for a slight reduction?
Posted by Sarah Pennells dated 2013-02-14 16:07:25
Hi Julie,
Thanks for your question. It is a bit too detailed to be answered in the comment section. I would suggest that you send a question in to the Ask the Expert section of the website. We are getting so many questions that we cannot promise to answer them all, but if we do, the answer will be uploaded as soon as I have it.
Posted by Sarah Pennells dated 2013-02-14 16:09:39
Hi Colley,
Thank you for your comment and I am sorry about the lengthy delay in replying. I have been having huge problems with the comments software. I do not know enough about the divorce laws in Spain to see if it is possible to re-open a financial settlement. However, I do not think you would be able to try and claim on the pension of your ex husband in the UK if you got divorced in Spain.
Posted by Sarah Pennells dated 2013-02-14 16:11:35
Hi Emma,
Thank you for your comment and huge apologies for the delay in replying. I would definitely recommend that you consider getting the pension valued independently. It can be very difficult to get an accurate valuation of final salary pensions. The longer your husband has been with BA for, the more worthwhile it is to get it independently valued.
Posted by shirley dated 2013-02-28 19:51:34
I got a divorce IN 2010 my ex husband wants £20,OOO when I sell the house,everything is in my name now the house and the deed,when we had a divorce we never split the assets we just had a divorce,now I do not know what to do give him £20,000 when I sell the house or go for his pension, I was married for 30 years and I have no pension.
Posted by Sarah Pennells dated 2013-03-01 07:39:18
Hi Shirley, Thanks for your question. I suspect that I, or a divorce lawyer, would need to know more about your situation to be able to give you a meaningful answer. Did you sign any kind of agreement when the house was transferred to your name? I'd suggest you submit the question via the 'ask the expert' panel (you'll need to sign up for email newsletters to do so), including as much detail as you think is relevant. If the question is selected, the answer will be posted online (but your surname will never be used).
Posted by Alison dated 2013-06-04 23:01:02
Hope you can help? After a 40yr marriage i am divorcing my husband on the grounds of his adultery, my Decree Nisi came though nearly 6 weeks ago, my husband is offering me 70% in my favour of the marital home and half of his pension,which is in drawdown, shall i accept? the penson shareing is too complicated for me to take in?
Posted by Sarah Pennells dated 2013-06-05 08:39:47
Hi Alison, Thanks for your question. I'm afraid that I wouldn't be able to advise you whether or not to accept an offer of a financial settlement, firstly, because I am not a divorce lawyer and, secondly, because I don't know enough about your situation. If you don't have a divorce lawyer, I would recommend you talk to one, even if you only see them once and sort out everything else yourself. Make sure they have experience of dealing in pensions.
Posted by JuneR dated 2013-09-30 11:23:09
My husband has received a quote from his private pension, which says I will need my decree absolute they will not take me into the pension. A pension advisor says I need the absolute, my solicitor says she is not applying for it, and that I need pension advise. I am confused!
Posted by Sarah Pennells dated 2013-10-01 07:02:00
Hi June, Thanks for your question. I'm not sure it is one I can answer here as it may be very specific to your case, but - in any event - I'd need a bit more information. Could you tell me what type of pension your husband has and why the solicitor said you needed pensions advice?

 
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