Pensions in Divorce: Why They Are Often the Most Valuable Asset

Pensions in Divorce: Why They Are Often the Most Valuable Asset – and Commonly Overlooked

When couples separate, many focus on the family home as the most important financial asset. However, in a large number of cases, the pension pot is actually worth more – yet it remains one of the most overlooked and misunderstood elements of a financial settlement.

As a family law solicitor specialising in financial remedy work, I regularly see clients who are unaware of their rights or who risk losing substantial long-term security by not addressing pensions properly during divorce.

This article explains why pensions matter, the options available, and how to protect your financial future.

Why Pensions Are Crucial in Divorce

A pension is not just a retirement fund – it is part of the matrimonial assets and can be shared on divorce. In many cases:

• One spouse has built a significant pension
• The other may have paused their career for childcare or family responsibilities
• There is a substantial imbalance that needs to be addressed

Failing to include pensions in financial negotiations can lead to a highly unequal settlement and long-term hardship.

Common Misconceptions About Pensions

Many people make assumptions that can put them at a serious disadvantage. The most frequent misunderstandings include:

• “We’ll each keep our own pensions.”
• “I’ll take the house, and they can keep the pension.”
• “My pension isn’t worth much.”

In reality, the value of a pension can exceed the equity in the property, and a fair settlement should consider both immediate needs and long-term financial security.

How Pensions Can Be Divided

There are three main ways pensions can be dealt with in a financial settlement:

Pension Sharing Order
A percentage of one spouse’s pension is transferred to the other. This is the most common and fair approach, giving both parties independent retirement funds.

Pension Offsetting
The pension is valued and offset against other assets, such as property. This approach requires caution as it may create long-term imbalance.

Pension Attachment Order (formerly “earmarking”)
A portion of pension income or lump sum is paid to the other spouse in the future. This is now rare due to dependency and uncertainty.

The correct option depends on age, needs, earning capacity, health and the overall asset structure.

The Importance of a Proper Valuation – Not Just the CETV

One of the most common and costly mistakes is relying solely on the Cash Equivalent Transfer Value (CETV).

The CETV often does not reflect the true value of a pension, particularly with:

• Public sector pensions (NHS, teachers, police, armed forces)
• Defined benefit or final salary schemes

In many cases, a Pension on Divorce Expert (PODE) is required to provide accurate valuation and guidance.

A modest CETV can mask significant guaranteed benefits and long-term value.

How the Court Approaches Pensions

The court considers pensions as part of the overall financial picture and seeks to achieve fairness.

• Length of the marriage
• Ages and future needs of each party
• Contributions to family life and childcare
• Ability to rebuild pension provision before retirement

A fair outcome often focuses on equalising future retirement income, not simply dividing values on paper.

Why Legal and Financial Advice Is Essential

Pensions are one of the most complex areas of family law. Specialist advice helps ensure:

• Proper valuation and disclosure
• Consideration of tax implications
• Long-term financial security
• A fair and legally binding settlement

A Financial Consent Order is required to formalise pension arrangements. Without it, agreements are not legally binding.

Key Points to Remember

• Pensions can be more valuable than the family home
• The CETV alone may be misleading
• Pension sharing is often the fairest approach
• Specialist pension advice is crucial
• A Consent Order is required for legal protection

Final Thoughts

Focusing only on immediate needs such as housing can result in serious long-term financial disadvantage.

Addressing pensions properly ensures fairness and security for both parties.

Contact Prime Legal Solicitors

For tailored advice on pensions, financial settlements and divorce, contact our specialist family law team.

Call 0330 341 4757 or use our online enquiry form to book an Initial Consultation.