Law Articles

Pensions and Insurance in Divorce and Separation 22/05/2025

When a couple separates through divorce, dissolution, nullity, or judicial separation, the court can redistribute pension benefits between the parties. Pension rights often represent a substantial portion of marital assets. There are three main approaches for dealing with pensions in such proceedings:

• Pension sharing
• Pension attachment
• Offsetting, where one party retains other assets or income in place of a share in the other’s pension

Pension Sharing

Pension sharing divides an existing pension arrangement between the parties following divorce, dissolution, or nullity. It is not available in judicial separation cases. In this arrangement, the party with the pension (the member) gives up a percentage of its value (a pension debit), which is transferred to the other party (the non-member). The non-member receives that amount (the pension credit) and gains pension entitlement in their own name.

Pension Attachment

A pension attachment order directs the pension provider to pay a portion of the member’s pension income, lump sum, or death benefit directly to the non-member. These payments do not pass through the member and may begin immediately or be deferred until the pension is accessed. Unlike pension sharing, attachment orders can be made in judicial separation cases.

Procedure

To apply for pension provision in financial proceedings, a formal application must be made. The applicant must notify the pension provider of the application. The member-party must then apply for a cash equivalent (CE) value and provide it to the other party unless this has already been obtained recently. Additional pension information is gathered using specific forms and must be obtained before any order is made.

Special forms are required when making pension sharing or attachment orders, depending on the type of pension involved. If expert advice is needed, a Pensions On Divorce Expert (PODE) should usually be jointly instructed by both parties. No expert evidence can be presented without the court’s permission.

Valuing Pension Rights

Regardless of the method used—offsetting, attachment, or sharing—the standard valuation method is the cash equivalent (CE) value. When a pension is already in payment, this is referred to as the cash equivalent of benefits (CEB). Different schemes may produce CEs that are not easily comparable, and expert input is often necessary.

Public Sector Pensions

These include pensions for employees of government, national services, and similar bodies—such as the armed forces, police, NHS, teachers, and local government. Most are unfunded, meaning current contributions fund current retirees. The Local Government Pension Scheme is a notable exception. These pensions may have different retirement ages and complex benefits, and their CE values may not fully reflect the true benefits.

State Pension

Often overlooked in divorce proceedings, state pension rights can be valuable. Full information about each party’s entitlements should be gathered during financial disclosure.

Implementation

The timely execution of a pension order is vital. Implementation must occur within a specific time frame, starting either from the date of the order or when the pension provider receives all required information. Delays may happen if the destination of the pension credit is not specified or if any fees remain unpaid.

Overseas Pensions

Care is required when dealing with foreign pensions. Some can be treated as liquid capital and addressed through a lump sum order. However, pension sharing and attachment are only available for UK pensions. Expert and tax advice may be needed when transferring overseas pensions or assessing their value.

Pension Protection Fund

This statutory fund compensates members of occupational pension schemes when the employer becomes insolvent and the scheme lacks sufficient assets. In divorce proceedings, any compensation a party is receiving—or stands to lose—can be considered. Orders can be made to share or attach this compensation. However, earlier schemes such as the Financial Assistance Scheme do not permit such orders.

Variation and Appeals

A pension sharing order can be varied before the divorce, dissolution, or nullity is finalised, but not afterward. Pension attachment orders, which are treated like financial provision orders, can be varied later. While appeals of pension sharing orders are limited once they take effect, appeals of attachment orders follow standard appeal procedures.

Effect of Remarriage, Civil Partnership or Death

Remarriage or entering a civil partnership prevents a person from applying for a pension attachment order unless they applied beforehand. However, pension sharing orders can still be applied for even after remarriage or civil partnership. If a pension attachment order has already been made, periodic payments will stop upon remarriage, but a deferred lump sum remains valid. Death ends periodic pension attachment payments but does not affect already implemented pension sharing orders.

Insurance and Endowment Policies

Payments on insurance policies may be included in financial orders. These policies can also offer security if a party dies while making support payments. Medical and life insurance policies should also be reviewed in financial proceedings.

UK Pension Regulation

Most private sector pension schemes operate under trust law, with trustees following specific rules and obligations. Public sector schemes are usually governed by regulations and statutory rules. Understanding each scheme's structure and legal framework is essential for accurate assessment and division.

Pensions and Bankruptcy

If a person becomes bankrupt, their estate transfers to a trustee in bankruptcy. However, rights under a pension scheme are usually protected and do not form part of the estate. State and most public sector pensions are typically excluded. Trustees can recover excessive contributions made prior to bankruptcy but cannot access the pension itself unless it is not an approved scheme.

For further information and advice on this issue, and other family law issues, please contact us for a free initial consultation.