What happens to your pension when you divorce?

Pensions have been in the spotlight recently, especially with the planned 2027 changes that will bring pensions into a deceased person’s estate. But long before that stage, many of our clients want to know what happens to your pension if you separate or divorce?

What happens to your pension when a married couple separates?

During separation, pensions are often one of the most valuable assets to be divided, probably unsurprisingly given the tax benefits currently available for contributions. It’s common for at least one spouse to have built up a substantial pension during their career, sometimes before the marriage, sometimes throughout it, sometimes both. Under the Family Law (Scotland) Act 1985, if the pension was in existence during the period of the marriage, it should be considered when identifying the total pool of matrimonial property, which takes the assets and liabilities accrued during the period of the marriage into account. The exercise that will then follow is how that total pot is shared fairly between the parties separating. Pensions can also play a factor in relation to cohabitation separation although that is not being covered in this article.

What is cash equivalent transfer value?

The key figure we look at is the CETV (cash equivalent transfer value) for the period of the marriage which can be obtained from the pension provider. An apportionment calculation strips out any value accrued out with the marriage. That apportionment calculation isn’t perfect and can result in an unfair outcome, particularly where a pre-marital pension is moved between schemes during the marriage which can have the effect of converting that pension into matrimonial property. In some cases, a report from an actuary is needed to argue that parts of the pension value should be excluded. It is important to state that such arguments are discretionary and open to challenge from the other party, but with the assistance of a report and an expert witness should the matter need to be litigated, it is more likely to be successful.

If one party is very keen to exclude pensions without having provided their CETV, this could be a cause for concern, and we would suggest would likely warrant further exploration. That is why it is key to understand the value and impact that pensions can have in separation and divorce and to carefully consider matters before reaching any settlement with your spouse.

Pensions are often imbalanced

Many couples also face imbalances: one spouse may have taken career breaks, worked part‑time, or simply been in a role with lower pension contributions. The couple may have taken decisions to pay more into one or the other of their pensions, or utilised bonus contributions received during the marriage to increase pension provision. These factors matter and can influence the final financial settlement.

A common misconception is that “it’s in my name, it is my pension, I paid into it, I worked for it” so it should remain that person’s sole property. In reality, if the pension was in existence during the marriage, it must be taken into account. Another common misunderstanding is that every pension held by the parties must be “halved” between them. That is not the case, and it is the totality of the assets and liabilities that needs to be shared, rather than each individual asset and liability. If you want to keep it intact (i.e. no share of the pension being given to the other spouse), you will need to offset it with other assets or a capital payment.

For spouses with little or no pension provision, a pension share can be one of the most valuable outcomes of a divorce settlement, especially closer to retirement age where the possibility of building pension provision lessens. And for those with significant pension wealth, ignoring its importance is rarely an option. It can have a significant impact on the total amount to be shared between the parties, can create substantial disparity and result in a large balancing payment being due from one party to the other when resolving the finances from their separation, which may have an impact on that spouse’s financial liquidity in the short to medium term.

In short, pensions can be significant assets in divorce and should never be overlooked. Even if held in one person’s name, they must be taken into account when ascertaining and dividing the matrimonial property as a whole. Tailored financial and legal advice is essential to achieving a fair outcome and should be taken at the earliest opportunity.

How we can help

If you have any questions relating to the issues raised here, please contact a member of the Anderson Strathern team or  Danielle Stevenson directly.