Introduction to Pension Sharing on Divorce
Published / Last Updated on 25/06/2025
You may be aware that when a couple divorce, there is usually a fair sharing of matrimonial assets between the separating couple. That said, recent case law and appeals are now making a distinction between matrimonial assets and non-matrimonial assets.
See: Pre Matrimonial Assets on Divorce
Pensions are Matrimonial Assets
Pension schemes used to not be considered as matrimonial assets but from 1970s under the Matrimonial Causes Act 1973, pensions are considered matrimonial assets. At the time, there was no mechanism to share pensions, so financial agreements on divorce were reached by offsetting non-pension income and capital against the value of pensions to enable fairness to both parties.
This was then advanced by the Pensions Act 1995 where Pension Earmarking was introduced.
Pensions Earmarking Orders
Earmarking was where a court order was issued to the pension scheme to ‘reserve’ a share or earmark a share of all of a pension scheme for the benefit of the divorcing spouse. The pension scheme member remains the member of the scheme, and they still have control over when they retired and whether they took lump sums and income. Pension Earmarking did not quite work because:
- The pension scheme member still had control over when they retired, so could decide to keep postponing retirement until age 75 meaning the former spouse with an earmarking order would not et any pension benefits until the member was ready and, in some cases, did make the former spouse wait until age 75.
- The pension scheme member still had control over how they retired, so could decide whether to take the pension all as income or take a lower income and tax-free cash. If the earmarking order for the former spouse was say only for tax-free cash part, the member could choose to take all as pension with no tax-free cash lump sum meaning the former spouse got nothing as no tax-free cash was taken.
- In the case of investment linked pension schemes, the member could elect to invest in poor performing funds to devalue the pension fund meaning the former spouse with eth earmarking order had no control and must accept the pension being in a worse position and then also the member still deciding when/where/what to do with the pension scheme before the former spouse got a share.
This was not fair and so Pension Sharing Orders were ‘born’.
Welfare Reform and Pensions Act 1999 - Introduced Pension Sharing Orders.
This meant that the court would issue an order to be served on the pension scheme to share an agree monetary amount/value of the pension scheme with the former spouse.
- The order is served on the scheme.
- The scheme then sends a transfer value for the pension sharing order amount to a new pension scheme in the name of the former spouse.
- This means the former spouse is no in control of their own pension fund, to invest where they wish, retire when they want to and how they would they to take pension benefits, be it lump sums, annuities, and/or flexible drawdown.
Divorce and pension sharing is not an easy subject to deal with. Professional pension advisers or actuaries should be appointed to calculate a fair share, their report presented to the courts and then the sharing order issued.
For more on the history of pension sharing, see Pensions & Divorce
