Why divorce could cost you your pension – three tips to think about
We look at why overlooking your pension now could lead to financial hardship in retirement.

Important notes
This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.
14 December 2020
The coronavirus pandemic has affected us all in one way or another.
Lockdowns have put added pressure on relationships – some think there’s a “post-lockdown divorce boom” on the way.
It might never happen to you, but it’s important to know the facts when it comes to finances and divorce. It could affect your decisions now and in the future.
We look at how divorce could affect your retirement plans and give three helpful tips to strengthen your financial position.
This article isn’t personal advice and contains information on complex matters. We recommend speaking to a specialist legal and financial adviser before taking action.
Pension and tax rules could change and any benefits will depend on your circumstances. If you’re not sure what the best course of action is for you, please ask for advice.
Divorce is on the rise
Divorces went up by nearly 20% in 2019. The biggest annual increase since 1972 among opposite-sex couples.
With more people looking up ‘divorce guidance’ online post-lockdown, and plans to introduce no-fault divorces in 2021, all signs point to this trend continuing.
The impact on retirement plans
Paying off your divorce bill could mean sharing a portion of your pension with your ex-spouse or offsetting it against other assets. If the split happens later in life, you’ll have less time to rebuild your retirement savings. It could mean working into your later years to earn an income.
Knowing what you have, and what your options are could make things a lot easier further down the line. Here are three tips to point you in the right direction.
Tip #1 – Talk about finances together
Do you and your partner tackle managing the finances together?
Splitting up can often highlight the issue of leaving the finances entirely to one person.
Even if finances don’t interest you personally, it’s important to understand your financial responsibilities as a couple. You could run into problems if you split up and you don’t know what you have. Or more importantly, what you might be entitled to.
This doesn’t just apply to divorce. If you’re not on the ball with the household finances and your partner falls ill or passes away, you could find yourself in a tricky position.
Talking about finances with your partner means you’re both aware of what’s going on and there are no nasty surprises. If this is new ground for you, our guide to love and money will help you start the conversation.
Tip #2 – Don’t just focus on property at divorce
People usually focus on the family home at divorce, and don’t think about their next biggest asset – pension savings. In fact, the Pensions Policy Institute found that seven out of ten divorce settlements didn’t take pensions into account.
Why relying solely on property for retirement could be a costly mistake.
Bringing pensions to the table in divorce proceedings could help you get your fair share.
You could be entitled to a portion of your ex-spouse’s pension if you haven’t had the opportunity to save yourself. Or if you’ve been paying into a pension while your spouse has taken a career break, they could be entitled to a portion of yours.
It’s important to understand anything you might be giving up, which might mean speaking to a financial adviser as well as a lawyer.
Tip #3 - Know your pension options at divorce
There are broadly three options for pension splitting at divorce. Each has advantages and disadvantages, so it’s important you understand these when deciding what approach to take.
Most types of pension can be split, but keep in mind that this is a complicated area. We strongly recommend seeking advice if you’re unsure.
1. Pension sharing order – where both parties’ pensions are considered together and then one gets a percentage of the other’s pension(s).
- It enables a clean break.
- Fairly easy to understand in principle.
- Means both parties get a pension pot.
- Lets each party look after their own pension and decide how and when to take benefits.
- It requires a court order to work out how the pension will be split.
- If the recipient isn’t of pension age, they won’t be able to access the money straight away.
2. Pension offsetting – where each party keeps their own pension, but trades it against other assets.
- It enables a clean break.
- It could help either one of the couple remain in the family home.
- One of the parties might be left with little or no pension income in retirement.
- It’s hard to split assets fairly – it might not fully account for the tax situation for respective assets.
3. A pension attachment order (pension earmarking in Scotland) – one person keeps their pension, but pays an income and/or lump sum to their ex-spouse once they access their pension pot.
- It enables the pension to be shared in some capacity, so nobody needs to start from scratch.
- Could be advantageous for the pension owner who keeps control of the pension, and might not have to pay anything if their ex-spouse remarries.
- It needs to be ordered by the court which comes at a cost.
- It’s not a clean break as it’s essentially maintenance paid from the pension.
- Any benefits will be taxed as belonging to the person whose pension it is – even when some of the funds are received by the ex-spouse.
- The person who doesn’t have the pension is unlikely to have any control over when they receive the benefits – so their ex-spouse could delay taking it or choose not to take it at all (unless specified in the order).
- Payments might stop when the person who owns the pension dies, or where the person receiving the payments re-marries (unless specified in the order).
- Could be impacted by changes to pension rules.
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Important notes
This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.
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