Pensions in divorce

January has long been known as “divorce month”. Family lawyers report a surge in enquiries as soon as the festive decorations come down, with couples deciding that a new year should also mean a new start. (1)

The reasons are rarely sudden. Christmas can put relationships under intense pressure – emotionally, socially and financially. Spending more time together exposes longstanding cracks, while arguments over money, family commitments and future plans often come to a head over the holidays. By January, many couples, reflecting on challenges encountered during the festive period, often recognise the need to take action.

The legalities

When couples then start the formality of dividing the assets up in a divorce, the family home tends to steal the spotlight and it can become even more focused upon if there are children involved. This can create tension, as people form a highly emotional attachment to their home and the thought of having to uproot at an already fractious time. However while bricks and mortar feel immediate and tangible, it’s often the pension sitting quietly in the background that turns out to be the most valuable asset of all.

But what about the pension?

Without truly understanding the importance of pensions, what they offer, and what you could be entitled  to, many people trade away pension rights in exchange for a bigger share of the home. That decision can come back to roost years later, when retirement draws near and the reality of a reduced income starts to hit. If your ex‑spouse was the one making the substantial pension contributions, you may suddenly find yourself without the pension provisions you once counted on, leaving the retirement you imagined feeling much further out of reach.

However, pensions are treated as part of the marital pot, just like savings or property, and with the right foresight, the outcome can look very different. Even if a pension sits in one partner’s name, the portion built up during the marriage is usually considered a joint asset. This is increasingly important as people work longer, live longer, and rely more heavily on private pensions to support their retirement.

There are three main ways pensions can be dealt with in a divorce, and each can have significantly different outcomes:

Pension Sharing

This is the cleanest option and involves carving up the pension itself, so each person ends up with their own separate pot. Once the split is done, both parties can move on independently, with no ongoing financial link. It’s often seen as the fairest approach, particularly where one partner has far less retirement provision than the other.

Pension Earmarking

A second option is earmarking, also known as pension attachment. In this arrangement, one spouse keeps the pension, but agrees that a portion of the income will be paid to the ex‑partner once the pension begins to pay out. The problem? It offers very little certainty. The ex‑spouse has no control over how the pension is invested or when benefits are taken, and payments stop altogether if the pension holder dies. Because it doesn’t provide a clean break, it’s far less common than a straightforward pension share.

Pension Offsetting

The final option, offsetting, is simple in theory but is frequently misunderstood and can be costly. One partner keeps the pension, while the other takes more of another asset, typically the family home. The danger lies in undervaluing the pension. A final salary scheme in particular can be worth far more than people realise, often exceeding the value of an average UK property.

The impact of legislative changes

With divorces rising over the past three years, set against the backdrop of the Divorce, Dissolution and Separation Act 2020, which came into force on 6 April 2022, important financial decisions are increasingly being made in haste. Pensions, in particular, are complex, technical, and all too easy to overlook, especially in DIY divorces where no one is prompting the difficult but essential conversations. (2)

One of our financial planners, Grace Burgin, sees these issues all too often. “The biggest pension mistakes in divorce aren’t driven by bad intentions, but by lack of understanding. By seeking financial planning advice alongside legal advice, individuals can make informed long‑term decisions rather than emotional compromises.”

Grace also highlights the importance of considering tax: “Tax is another frequently overlooked factor. Pension transfers done incorrectly can trigger unexpected charges, while State Pension entitlements are often ignored altogether. Updating beneficiary details once a divorce is final is also vital, yet easily forgotten.”

When it comes to pensions and divorce, the takeaway is simple: a fair divorce settlement isn’t just about today’s living arrangements, it’s about future financial security. Get the pension side wrong, and the consequences may not become clear until it’s far too late to fix.

(1) lawnews.co.uk

(2) lawsociety.org.uk

This article is intended as an information piece and should not be construed as advice.