High-Value Pensions In Divorce: What You Need To Know

When couples divorce, the focus is often on the family home, savings and investments. However, for many high-net-worth individuals, one of the most valuable assets is their pension. For business owners, company directors, senior executives and professionals, pension wealth can represent a significant proportion of the family’s overall financial resources.

Unlike other assets, pensions are designed to provide financial security in later life, making them a particularly important consideration during financial remedy proceedings. Their value may not always be immediately apparent, especially where there are multiple pension schemes or complex retirement arrangements. As a result, pensions should be considered carefully as part of any overall financial settlement.

Understanding how pensions are treated on divorce can help ensure that long-term financial needs are not overlooked. In many cases, specialist legal and financial advice is needed to assess pension wealth accurately and achieve a fair outcome for both parties.

Are pensions included in a divorce settlement?

Yes. In England and Wales, pensions are always part of the overall financial picture when the court is determining a fair financial settlement on divorce. They are often a key consideration when looking at the capital acquired during the marriage. 

However, this does not mean that pensions are automatically divided equally or treated in isolation. Instead, the court considers pension wealth alongside the couple’s other assets, including property, savings, investments and business interests, as well as each party’s financial needs and future circumstances.

The court will consider a range of factors, which may include:

• The value of each party’s pension arrangements.
• The length of the marriage.
• The financial needs and resources of each spouse.
• The parties’ ages and provision for retirement.
• Other assets available for division.
• The welfare of any dependent children.

For high-net-worth couples, pension wealth can form a substantial part of the overall asset pool. Ignoring pensions during negotiations may lead to an unfair financial outcome, particularly where one spouse has accumulated significantly greater retirement savings during the marriage.

Each case will depend on its own facts, and the appropriate approach will vary according to the parties’ individual circumstances and wider financial position. However, obtaining a report from a qualified actuary is often the first step to working out the division or retention of pension assets.

How are high-value pensions valued?

Valuing a high-value pension is not always as straightforward as checking the latest annual statement. Different pension schemes operate in different ways (ie defined benefit schemes vs defined contribution schemes), and the figure shown on a pension statement may not accurately reflect the true value of the benefits available.

One of the first figures considered during financial disclosure is the Cash Equivalent Transfer Value (CETV)of the pension, which estimates the value of the pension benefits. While the CETV can provide a useful starting point, it does not always represent the full value of certain types of pension, particularly defined benefit schemes.

The type of pension involved will often influence the valuation process.

Where pension arrangements are particularly valuable or complex, the court may require expert evidence to assist in understanding their true worth. Pension experts such as actuaries can provide independent reports that consider factors such as retirement age, projected income, scheme benefits and the impact of different options for dividing pension assets.

Obtaining a pension report at an early stage can help ensure that pensions are properly considered alongside the couple’s other assets when negotiating a financial settlement.

 What options are available when dividing pensions?

There is no single approach to dealing with pensions on divorce. The most appropriate option will depend on the type and value of the pension, the parties’ wider financial circumstances and what is needed to achieve a fair overall settlement.

The main options include:

Pension sharing orders

A pension sharing order allows a percentage of one spouse’s pension to be transferred into a pension arrangement in the other spouse’s name. This gives each person their own independent pension benefits for retirement. This is done at the time of divorce, not at retirement age and there are fees for the pension funds to administer this. In this way, a clean break is achieved and allows the spouse to continue growing their pension after division without fear it will be vulnerable to the other spouse’s claims.

For many high-net-worth couples, a pension sharing order can provide greater financial certainty because it creates a clean break in relation to pension assets.

Pension attachment orders

A pension attachment order (sometimes referred to as pension earmarking) directs that part of a pension’s benefits should be paid to the former spouse when the pension comes into payment.

Unlike pension sharing, the pension remains in the original member’s name. As a result, this option is generally less common and may not provide the same level of financial independence.

Pension offsetting

In some cases, one spouse may retain their pension while the other receives a larger share of different assets, such as the family home, savings or investments.

Although this can be an attractive option where one party wishes to keep their pension intact, it is important to recognise that comparing pension wealth with other assets is not always straightforward and can be like comparing “apples and pears”. Different assets have different characteristics, liquidity and tax implications, so careful financial analysis is often required before agreeing to an offset.

Common issues for high-net-worth individuals

For high-net-worth couples, pension arrangements are often more complex than a single workplace pension. It is not unusual for one or both spouses to have built up retirement savings through several different schemes over the course of their careers.

Common issues can include:

• Multiple private pension arrangements.
• Executive pension schemes.
• Self-invested personal pensions (SIPPs).
• Overseas pension arrangements.
• Pension benefits linked to business ownership.

Where pensions form part of a wider portfolio of assets, decisions about how they should be treated should not be made in isolation. For example, one spouse may wish to retain a valuable pension while the other prefers a greater share of property or investment assets. Understanding the long-term financial impact of these decisions is essential before reaching an agreement.

Tax considerations may also influence the overall settlement. Although pensions can offer valuable retirement benefits, transferring or offsetting assets without understanding the wider financial consequences could result in an outcome that is less favourable than anticipated if it incurs an unforeseen tax liability.

Given the complexity of many high-value pension arrangements, solicitors and mediators will often work alongside independent financial advisers and/or pension experts to ensure that settlements are based on accurate information and realistic long-term planning.

Conclusion

High-value pensions are often among the most significant assets in a marriage, yet they can be overlooked during divorce proceedings due to outdated perceptions that these assets belong to the person who earned them. Whether you have accumulated pension wealth through executive schemes, private pensions, business ownership or long-term professional careers, understanding how these assets are valued and treated is essential to achieving a fair financial settlement.

Each family’s financial circumstances are different, and the right approach will depend on the nature of the pension arrangements, the parties’ wider asset portfolio and their future financial needs. Seeking specialist legal advice early in the process can help ensure that pension wealth is properly considered as part of the overall settlement.