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Pensions & Divorce

A big issue when it comes to pension schemes surrounds the implications that divorce will have. As your pension can actually be one of the largest assets you have - it could be worth even more than your home - then it will become a major consideration in your divorce settlement.

The Options

At the moment there are three options that can be used to help assess the split of the marital assets, including the pension.

Pension Offsetting

The first method is called Pension Offsetting, and is by far the simplest. One partner's pension is "traded" against other assets to an agreed value.

Example: The husband's pension fund totals £50,000, and the home is worth £50,000. If the property is jointly owned, it could be agreed that the wife keeps the house and the husband keeps the pension. This is because they are the same value. This option is used frequently because it is straightforward.

Pension Sharing

Pension Sharing is the most recent option available. This allows the partners to make a clean break. An agreed portion of the pension value is transferred to a new pension plan on behalf of the ex-partner. It is possible that this pension could be the only pension provision they have for retirement.


Earmarking is another method. This option is not used frequently because it can be extremely complicated. However, in practice the partner who has the pension has a portion of their pension allocated to their ex-partner for when they retire. This means an ex-partner will have to wait for their former partner to retire before receiving any money. If the divorce wasn't amicable, then the partner with the pension could choose to wait until they are 70 or older to retire. They could also invest the pension poorly which could risk the value of it being decreased. Also, the earmarked portion may be lost if the pension holder dies before retirement.

Beat the stress

Divorce is a stressful and demanding time on all parties, and having an idea about which method suits your circumstances will help immensely. Most people wish to have a simple process and a clean break. Sorting out the pension by using one of these methods can help in this process.

This is when the advice of an independent financial advisor and, if necessary, an actuary can assist in the valuation and placement of the affected pension.

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