How does a pension sharing order work in divorce?

Full answer

Pensions are often among the largest assets in a divorce, sometimes exceeding the family home in value, and a pension sharing order is generally considered the cleanest of the available methods for dividing them because it creates a clean break with independent ownership. **How a pension sharing order works** The court specifies a percentage of the pension holder's pension rights (a 'pension credit') to be transferred to the other spouse, who then either becomes a member of the same scheme in their own right (less common) or, more typically, has the credited value transferred into a pension of their own choosing -- from that point, the receiving spouse owns and controls that portion of the pension entirely independently. **Pension sharing versus offsetting** Instead of splitting the pension itself, 'offsetting' involves the pension holder keeping their full pension while the other spouse receives a larger share of other assets (such as more equity in the family home) of broadly equivalent value -- this avoids splitting the pension but requires sufficient other assets to offset against, and valuing a pension for offsetting purposes accurately can be complex, especially for defined benefit schemes. **Pension sharing versus pension attachment (earmarking)** An older alternative, pension attachment (sometimes called 'earmarking'), directs a portion of the FUTURE pension income or lump sum to the other spouse when the pension holder eventually draws it, rather than transferring ownership now -- this means the receiving spouse remains dependent on the original pension holder actually retiring and drawing benefits, and payments typically stop on the paying spouse's death or the receiving spouse's remarriage, making pension sharing generally preferred for a genuine clean break. **Defined benefit vs defined contribution complexity** Splitting a defined contribution pension (a pot of money) is relatively straightforward to value and share; a defined benefit (final salary) pension requires actuarial valuation using a Cash Equivalent Transfer Value (CETV) to translate the promised future income into a comparable capital figure for sharing purposes, which can be a complex and sometimes contested part of divorce financial proceedings. **Worked example** One spouse has built up a substantial defined contribution pension pot during the marriage; the other has little pension provision of their own, having taken a career break to raise children. A pension sharing order might transfer, say, 40% of the pension holder's pot (valued at the time of the order) into a new pension in the other spouse's own name, giving them independent retirement savings going forward, separate from any decisions the original pension holder later makes about their own pension. **Practical tip** Pension sharing requires a court order (even if the divorce itself is otherwise amicable and agreed), and defined benefit pensions in particular usually need a specialist pension-on-divorce actuarial report to establish a fair valuation before a sharing percentage can be sensibly agreed or ordered.

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