Non-State Pension and Divorce

If you are divorced you may be allowed to use your former partner's National Insurance record as the basis for your own State Pension. You may also be awarded a share of your former partner's State Second Pension as a part of your divorce settlement. Your individual options will depend on your personal circumstances and the details of your divorce; for more information see State Pension and Divorce.

It is important to remember that pension rights, whether State Second Pension or personal pension rights, will only be shared if you were married to or in a registered civil partnership with your former partner. If you are living with someone but yours is not a registered partnership and you then separate, you will have no claim on their pension rights, nor will they have a claim on yours. It is vital that you have your own sources of retirement income when you are in an unregistered partnership, for example your own personal pension, and you do not rely on your partner to support you financially in your retirement; if you separate without your own sources of income you will be left without financial security.

Make sure that you are prepared to fight for a share of your former partner's pension rights and be aware they may well fight for a share of your rights; retirement may not seem a pressing concern when you divorce, but failing to retain a share of your former partner's pension may leave you with little or no financial security on retirement. Women more commonly have smaller pensions, and many rely entirely on their husband's pension scheme to support them both in retirement. In such cases divorce can affect women in a more financially detrimental way, as they are left without a share of their husband's pension, nor the guarantee of a pay out if he dies before them. The divorce courts accept that a divorce which entails the entirety of one partner's pension away from their former partner is unfair, and they are accustomed to dividing pension rights in the event of a divorce.

There are three ways in which your pension rights could be divided: offsetting, earmarking and sharing. The option that is most suitable for you and your partner will usually be determined by the lawyers dealing with your divorce settlement. One option may be more appropriate than another because of the assets available or the type of settlement you wish to achieve. Each method of dividing pension rights will have its advantages and disadvantages; the most important measure will be whether the settlement reached is one with which both parties can agree.

Offsetting is essentially bartering for a larger share of other financial assets in exchange for giving up a claim on your partner's pension rights. For example, if your partner has a large pension fund you may agree to surrender your claim on their pension rights in exchange for being allowed to retain your family home. This exchange of other financial assets for pension rights is known as offsetting, because you offset the value of pension rights against the value of other things. This has the advantages that the one partner retains their full pension rights, the other the assets that are perhaps more valuable to them. The partners can reach an agreement and leave with a clear indication of who retains what. The disadvantages are that one partner is left with fewer assets, for example, without the family home, whilst the other partner is left without pension rights: they have no guarantee of any retirement income unless they make their own provisions. If you have limited financial assets to divide offsetting will usually be impractical.

Earmarking, also known as attachment orders, is when you are entitled to an agreed share of your partner's pension rights. You may be entitled to a percentage of the pension they receive or will receive in the future, a tax-free lump sum when your partner claims their pension, or a lump sum pay out in the event of your partner's death. This approach to pension division is known as earmarking because you essentially mark out what part of your former partner's pension rights will be allocated to you. This has the advantage of ensuring both parties will retain some pension rights and it may be prudent to earmark a pension when there are very few other financial assets to divide. However, you are still 'in contact' with your ex-partner through the pension scheme arrangements and thus are prevented from leaving and never contacting them again; in addition, if your ex-partner dies before you and you agreed to a share of their annual pension, this pension will stop and you will be left without a pension income of your own. Bear in mind that earmarking may include a clause which dictates that if you remarry those ex-partner's pension rights earmarked for you may be returned to your ex-partner leaving you without pension rights.

Pension sharing is the process of dividing up your partner's pension rights between you both. Each partner will retain some pension rights and these pension rights become their own. For example, if it is agreed that you will receive thirty-five percent of your partner's pension rights, these pension rights become your own. Whatever happens to your ex-partner in the future is irrelevant in terms of your pension rights. In contrast to earmarking, if you have a share of your partner's pension and they die, your share retains its value and will be paid to you. Similarly, your ex-partner will retain their share of the pension rights which will be unaffected by what happens to you in the future. Pension sharing has the advantage of making the pension rights you receive your own and thus protecting your right to a retirement income whilst allowing you to walk away from your divorce without the need to remain in contact with your ex-partner.

It is only possible for the pension rights from one pension scheme to be divided in one way: you cannot combine offsetting and earmarking for example. However, if you or your partner have several pension schemes, the rights from these different schemes can be divided in different ways. The amount that you are entitled to when pension rights are divided will depend on a number of factors such as age, other financial assets, the number of years you were married or in a civil partnership and how much it will be possible for you both to earn before your retirement. You may be allowed to transfer the pension rights you have been given to a pension scheme of your choice; make sure that any decisions you make are done so with the advice of an independent financial advisor. Even if you are keen to put distance between you and your ex-partner and are unwilling to leave your pension rights in the same scheme, you need to consider the best financial advantages for your individual situation and ensure that you protect your future financial security as best as possible.