How are pensions considered within financial settlements on divorce?

Pensions are a key asset that must be considered when parties are divorcing, as pensions often are the second largest asset, after property. Pensions form a significant part of the ‘matrimonial pot’ for division upon divorce, yet they are often overlooked. Research shows that ” only 11% of the more than 100,000 divorces in 2024 and 2025 involved pension attachment orders, which allow for the division of pension assets. Further, 71% of divorce settlements do not consider pension assets, often prioritising housing and property instead.” Foregoing a share of a spouse’s pension to retain the family home or other assets instead is likely to meet an immediate need (such as secure housing), but it often leaves that spouse at a financial disadvantage in retirement when they will have limited/no pension resources to meet their needs.  It is therefore very important to obtain legal advice to consider all of the available options.

The value of a pension is known as the Cash Equivalent Transfer Value (CETV). However some CETVs, particularly Armed Forces and public sector schemes, can undervalue their schemes.

When obtaining legal advice your solicitor will consider whether specialist pensions advice from a Pension on Divorce Expert (PODE) is necessary. The necessity will depend on a number of factors including:

• The type of pension(s) involved
• The CETVs involved
• Whether there are any foreign pensions to take into account
• The state pensions which the spouses are due to receive
• The ages of the spouses
• Whether offsetting a pension share against cash or another asset is a possibility
• Where one or both spouses have a medical condition that will impact in their life expectancy

The PODE will advise how much of the pension(s) should be shared, having regard to various scenarios. PODE reports are often a valuable resource within financial negotiations.

Our solicitors at Ward Hadaway have a wealth of experience in dealing with pensions upon divorce, and so they will advise whether a PODE report is necessary and if so, what the scope of the report should be. Your solicitor will instruct the PODE on your behalf, and they will advise you upon receiving the PODE’s report – both in terms of the various options open to you/your spouse and the implications of each.

There are three main ways that pensions can be divided upon divorce

1. Pension sharing

This is the most common way of dealing with pensions within financial settlements upon divorce.

Pension sharing allows pension assets to be split immediately, allowing a clean break and each party the ability to independently decide what to do with their share. The receiving party can choose where they wish to invest their share i.e. they may wish to set up a new pension or add the funds to their existing pension. However, a pension can only be shared if it has been ordered by the court, through a pension sharing order.

2. Offsetting

Offsetting is a simpler process whereby you can trade pension assets for other assets you currently have. For instance, one party may keep their entire pension fund, while the other party retains the family home in their sole name.

A PODE is best placed to advise how offsetting against a pension can be achieved. If offsetting is agreed, then the arrangement will form part of the financial order that will be approved by the court.

Having a sealed court order approving any financial settlement is important because without a financial order it is possible for one party to still apply to the court requesting further financial orders are made. This can happen years later. Making your agreement legally binding in the present, and imposing a financial clean break to prevent applications to the court in the future, will provide financial protection and security.

3. Pension attachment orders

This order requires the spouse who is in receipt of their pension to pay a specific percentage or amount of their pension to their former spouse each month or year. It provides the receiving spouse with an income that comes from their former spouse’s pension.

Pension attachment orders are quite an old fashioned approach to pensions and we rarely see them made nowadays. Mainly because they come with several pitfalls;

• The spouse receiving the pension income can only do so when the other retires, so they may have to wait, sometimes for a significant amount of time
• A pension attachment order (and therefore the income received from it) would cease if the paying spouse died, or if the receiving spouse remarried

As pensions can be complex, it is important for them not to be overlooked. Specialist advice from a PODE is necessary in many cases, and it is important that clients seek legal advice before agreeing to a division of assets.

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Trusts within financial settlements

Within the financial negotiations arising from a divorce/dissolution of the marriage, both parties are required to provide a clear, accurate and complete picture of their financial circumstances. This is commonly known as ‘full and frank financial disclosure’.  This includes any interests in trusts that the parties may have.

Examples of trusts include (but are not limited to):

1. Bare trusts

This is the simplest kind of trust. The trustee merely holds legal ownership of the asset without any powers of management or control. The beneficiary holds the complete beneficial ownership of the trust property, and the trustee must act on the beneficiary’s instructions, rather than having any active management or duties. In financial remedy cases, the assets held in a bare trust can effectively be regarded as fully available to the beneficiary party on their request.

2. Fixed trusts

A fixed trust specifically defines the beneficiary’s interest in the trust – it may be immediate, or deferred to a date or specific event in the future. An example is a trust created under a will that leaves specific shares of the estate, or specified assets, to named beneficiaries or the right to occupy trust property.

3. Discretionary trusts

A discretionary trust defines the beneficiaries to whom the trustees may make provision, but the trust gives the trustees discretion whether and when to apply any part of the trust assets to any beneficiary. In a true discretionary trust the beneficiary has no right to any of the trust property. The beneficiary only has the right to ask the trustees to exercise their discretion and to consider providing trust assets to them as a financial resource. Discretionary trusts cause the most difficulty in financial negotiations because often each spouse has a different view as to what the trust can/will provide. It is necessary to look at what a spouse has received from the trust historically as a means of considering what income and/or resources it can provide in the future.

4. Contingent trusts

These are typically trusts for children, where each child has an interest that is contingent on reaching a certain age, such as 18 or 25. The trustees usually have powers to use income and capital to benefit the children before they reach the specified age.

If a spouse is the beneficiary of a trust then they will be required to provide details of its history, and a copy of the trust deed. Any deeds of variation and letters of wishes will also need to be examined. It is likely that disclosure of trust accounts, a schedule of assets owned by the trust and valuations of the assets within the trust will be required to enable the court and the respective legal representatives to consider how any income and/or wealth held by the trust has been paid to/used by the spouse(s) over the years.

The court will assess how likely it is that the beneficiary spouse is to receive a financial benefit from the trust and how this could impact their future income and/or resources. This is a relevant consideration under Section 25(2)(a) of the Matrimonial Causes Act 1973 (MCA 1973), i.e. the court must consider “other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future“.

Sometimes, funds in a trust may be classed as non-matrimonial property, meaning if the spouses’ needs can be met with the rest of the matrimonial assets such as income, property, savings and investments, business interests, pensions etc., then the trust could be ring-fenced and excluded from the ‘matrimonial pot’ that is to be divided upon divorce. However, this depends on the circumstances of the case, and each couple will have a bespoke set of circumstances so a nuanced assessment will be required.

Navigating this area of law can be complex, and the right approach will depend on the specific circumstances of each case. Seeking early legal advice can help you understand your position, avoid potential pitfalls and help you to make informed decisions. If you would like guidance tailored to your situation, our specialist matrimonial solicitors are on hand to provide clear, straight-forward, practical advice and support every step of the way.

Contact our team to discuss how we can help.