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New research by the insurance company Legal and General has found that a whopping seven in ten divorcing couples do not share their pensions. This leaves women, in particular, at greater risk of not having sufficient money to live on in retirement.

According to a Which? Survey of 1,000 people who divorced since 2000, one in five of them had not even considered sharing their pension as part of their financial settlement. Pensions can be a valuable asset and are sometimes worth more than the former family home, which tends to be the most coveted asset. Some may be reluctant to divide their retirement pot with their ex-spouse, and the Which? Survey backs this up. Twenty-two per cent stated they did not want to share their retirement savings on divorce.

The reality for many women means that their own pension is unlikely to reach that of their spouse. A combination of women shouldering caring duties and generally earning less during their lifetime means pensions are rarely weighted in their favour. In real terms, women, on average, retire with less than half the pension of a man the same age.

Since 2000, those who divorce can obtain a pension sharing order from the court. This was designed to achieve a fairer financial outcome after separation. However, evidence suggests that many divorcing couples do not realise this is an option or even that pensions are considered a matrimonial asset capable of consideration. A pensions expert is best placed to calculate the real value of a defined-benefit pension, with final salary or high-value defined benefit schemes particularly worth fighting for.

Often, a spouse may not be aware their partner has a pension or may not know how valuable it is. But when people get divorced, they must disclose the ‘cash equivalent transfer value’ (CETV) of their pension to their partner’s solicitor and the court. However, the CETV doesn’t tend to include specific life insurance type benefits, so the real value of the pension could be much greater.

If legal advice is not obtained, it is possible for one spouse to walk away without realising they have missed out. And at least a third of all divorcing couples fail to obtain professional help to sort out their financial affairs.

There are three ways a pension can be split:

1. Pension sharing

This is where retirement savings are split immediately upon divorce, meaning someone could obtain their share of their spouse’s pension straightaway. The amount is expressed as a percentage of the transfer value of the pension that is to be split. For example, if the value of the pension is £150,000, a 50% share would be £75,000. The final transfer value is worked out the day before the pension sharing order comes into effect.

2. Pension offsetting

This is where the pension’s value is offset against other matrimonial assets of a similar value. For example, a spouse could retain their pension, but in return, their partner keeps the former family home. This works particularly well in cases where the assets are of a similar value.

If this route is chosen, someone could still end up without a pension if they have not saved for one themselves. So it is vital to obtain good pension advice.

3. Pension earmarking

This means that a spouse would not receive any money straightaway, but when their partner starts to draw their pension, part of it is paid to them. The court instructs the pension provider to make these payments.

This solution has its issues. If the spouse holding a ‘defined benefit’ pension dies before their ex-partner, there is a real chance they would receive nothing. Additionally, if they retire early on a defined benefit pension, their benefits may be reduced, which means the receiving spouse could get less than expected. Although defined contribution pensions are less complicated to deal with.

It is worth mentioning that under a pension earmarking order, a clean break cannot be achieved. This is because an ongoing link with the other party remains.

State pensions cannot be shared, and anyone who reaches retirement age after 2016, they can no longer use their ex-spouse’s National Insurance Contributions to increase the amount they receive. Anyone receiving their state pension or reaching state pension age after 6^th April 2016 will be paid the ‘new’ state pension.

Because of the recent change in divorce law, the new ‘no-fault’ divorce could mean that even fewer couples seek divorce advice and consequently remain in the dark about sharing their spouse’s pension, a situation which arguably presents a financial time-bomb for many women.

Contact our International Divorce Solicitors based in Manchester, London and Birmingham

Our specialist international divorce lawyers will help you every step of the way – we can advise you on all matters related to pensions and divorce.  To arrange an initial consultation about divorce, call our specialist Divorce Solicitors on 0330 107 0107 or request a call back.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.