1) Pensions during divorce: the asset that gets ignored

When relationships end, focus often turns to the family home, bank accounts, or who gets the car. But one of the most valuable financial assets ‘the pension’ is often forgotten or misunderstood.

Shocking statistics reveal the scale of the problem:

  • Only 12% of divorces in the UK result in a pension sharing order (University of Manchester & PPI, 2022)
  • Over 70% of couples don’t consider pensions during divorce (Scottish Widows, 2023)
  • Divorced women over 50 have less than one-third the pension wealth of men (NOW: Pensions, 2022)

Settlements may look fair in the short term, but the long term implications are not sufficiently considered.

One party, most frequently the female, ends up significantly worse off in retirement, putting their financial freedom in jeopardy. The stakes are high.

2. Why pensions may be worth more than the family home

The family home is emotionally charged. It feels “real”. But from a financial perspective, pensions often provide greater long-term value

Here’s why:

  • Pensions benefit from tax advantages and compound growth.
  • They require no ongoing maintenance.
  • They offer flexibility in retirement and can generate income in a tax-efficient way.

Of course it depends what happens with the markets etc, but we have years of very precise data about long term market performance which we can utilise in a comparison.

A typical scenario:

  • £500,000 pension pot growing at 5% annually
  • £500,000 home appreciating at 3% annually, minus 1% maintenance

Two decades later, the pension has generated significantly more value. It’s not just about what it’s worth now but what it’s worth in the future. Note that this comparison doesn’t take into account the value we add to our homes with new kitchens, bathrooms and extensions etc.

3. The psychology behind why pensions get overlooked

Even when couples know pensions are valuable, they may avoid including them in settlements. Why?

💭 Psychological ownership and the endowment effect

People feel a deep attachment to things they believe they’ve “earned” even if, legally, it’s considered to be a shared asset.

“It’s my pension. I worked for it.”

This is called psychological ownership (Pierce et al., 2003). It creates emotional resistance to splitting pensions, even though the legal imperative is very clear.

🔍 Legal reality check

  • UK courts treat pensions as marital assets
  • They can include pensions built before marriage in certain cases
  • You’re not “losing” a pension, you’re dividing joint wealth
  • You can insist that pensions are shared

Furthermore we tend to overvalue what we already have. This is know as the Endowment Effect (Thaler & Sunstein, 2008). During a divorce this means tangible assets, the house, savings, your property.

Layer in other dynamics like, guilt, shame and a desire to keep things amicable, it’s no wonder pensions are avoided. But this must be tackled. Your future financial security really is at stake.

4. Types of pensions matter

Understanding the type of pension you have really matters. Some are more straightforward to value and split. Other types will require professional involvement to avoid costly mistakes.

Defined benefit (DB) pensions

  • Often linked to salary and years of service
  • Provide guaranteed income for life
  • A DB pension’s cash equivalent transfer value (CETV) might understate its real-world worth, so requires specialist analysis.

Defined contribution (DC) pensions

  • Built up from contributions and investment growth
  • Value depends on market performance
  • Easier to split, but variable outcome

State pensions

  • Usually not shareable
  • May still affect financial planning post-divorce so need to be considered in the calculations

5. How to split pensions fairly

Get expert help to ensure your settlement is financially fair and future-proof.

There are three main ways pensions are dealt with in divorce:

Pension sharing options

  1. Pension Sharing Orders: Most common, most direct and often the fairest route. One party formally receives a share of the other’s pension which legally becomes ‘theirs.’
  2. Offsetting: Swapping one asset (like the house) in exchange for the other’s pension. Risky without proper modelling.
  3. Pension Attachment Orders: Some of members pension benefits are paid to the other party, when they become payable. Less flexible, and rarely used.

Who can you get to help?

A PODE (pension on divorce expert)

A PODE can:

  • Analyse DB schemes with complex rules
  • They provide computations to ensure the split is equitable
  • Support the parties and the court with recommendations as an expert witness appointed by both parties jointly

Do I need a PODE?

In complex cases a PODE is vital. In fact if pension sharing is involved in a settlement, courts will typically insist that one has been consulted.

Use this simple assessment to determine whether your divorce case requires a pension on divorce report and if so what type best suits your circumstances.

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Do I need a PODE?
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A financial planner/adviser

A financial planner will:

  • Translate pension values into real-world outcomes
  • Model post-divorce income, tax, and retirement options
  • Help secure your post divorce financial security
  • Assess the impact of your divorce settlement on your future financial freedom

Example:

Financial planners and advisers can model the long term implications of settlement options using highly technical cash flow planning software.

You might be offered £300,000 in home equity instead of a £400,000 DB pension. A financial planner can show how that trade might leave you financially vulnerable at retirement.

A PODE can tell you what the pension is worth on paper. A financial planner can tell you what that will mean for your future.

Conclusion: Don’t let a mistake during your divorce diminish your long term financial freedom

Pensions might be invisible during divorce, but they will be very visible in retirement. Don’t underestimate their value.

Recap:

  • Over 70% of people fail to include pensions in their divorce settlement
  • Pensions often beat property in long-term value
  • Emotional bias can blind us to what’s fair
  • Expert input is often essential to navigate the financial complexities arising during divorce

References