How pensions are treated in divorce
Do not assume pensions will be divided equally in a divorce. All divorces are different because individual circumstances are infinitely variable. Therefore what is an appropriate solution for one divorcing couple is not necessarily appropriate for another.
The importance of pensions will vary greatly from one divorce case to another. In one set of circumstances both spouses may be in their twenties and have negligible pension provision. On other occasions they may both have been working during the marriage and have comparable pension provision. Then there is the case of the wife who has stayed at home during a thirty year marriage while the husband has built up a substantial pension provision. These cases are very different.
Then how do we value a pension? Parliament has provided a mechanism for this and that is the capital transfer equivalent value (CETV) of the pension at a given date. This is the lump sum which the existing pension provider would have to transfer out of the pension fund in order to provide the benefits as they then stood with another pension provider. The CETV is the figure taken as the starting point by the courts and it is the figure required by the Form E used in the proceedings to settle the financial issues arising from the marriage.
However, this does not necessarily value a pension accurately (to the extent that can ever be done). For example, people working in the public sector often have rights to retire early while taking a full pension. The value of such a pension is not necessarily accurately reflected in its CETV value. A pension to a person in good health may be worth much more than the same pension to a person in poor health. Similarly some pension provision such as the basic state pension cannot be split whereas others such as the second state pension can be. Statistically women tend to live longer than men and so a given pension pot will typically provide less by way of pension income for a woman than for a man.
Now these factors do not feature in all divorce cases. And there are costs associated with pension sharing. The pension provider may seek up to £2,000 or so to implement a pension sharing order and/or to provide additional information. In cases where the value of pensions is substantial it may be necessary to instruct an actuary in order to work out what the effects of various methods of dealing with the given pensions would be in retirement. Whether to incur this expense in any given case is a matter of balance.
There are two final points. First, what is the position of cohabitees who are not married and not in a civil partnership? It is simple. There can be no pension sharing. When once such partner dies his/her pension dies with him. Second, in order to share a pension one needs a court order. This can be done by agreement but it does require a court order. Pension trustees will not share pensions without a court order directing that they do so. Cases involving pension sharing therefore almost always require the assistance of a solicitor.