Pensions on divorce: an enduring blind spot in financial settlements

Henry Hood, senior partner at Hunters Law LLP, examines why pensions remain one of the most overlooked assets in divorce settlements despite their long-term importance and the availability of pension sharing orders.

Despite the introduction of pension sharing on divorce a quarter of a century ago, pensions continue to be among the most frequently overlooked and poorly understood assets in divorce settlements. At the point of relationship breakdown, clients’ attention is often directed towards immediate and practical concerns, with longer‑term pension provision receiving comparatively little focus unless it is actively brought into the discussion by their legal or financial advisers.

The Nuffield Foundation’s Fair Shares project found that around one quarter of divorcees did not know whether their former spouse had a pension at all. Around the same proportion of divorcees with a pension were unable to identify the type of scheme of which they were a member. The research suggests that many divorcing couples lack even a basic understanding of pension provision, at a point when important decisions are being made.

As financial advisers will know, pensions can be as valuable as the family home. However, limited understanding of pensions, combined with the fact that they do not need to be divided in the same way as jointly owned property, makes them particularly susceptible to being overlooked on divorce. This is especially concerning given that pension wealth is often concentrated in one party’s name, particularly after longer marriages where one spouse’s career has been prioritised.

While some couples may make a conscious and informed decision not to share pension assets, the difficulty lies in ensuring that such decisions are genuinely informed, both as to the legal options and the true value and significance of pension assets. This is concerning given that there is, according to the Fair Shares report, “a considerable level of ignorance about pensions in general, and about the possibility of sharing them on divorce in particular, among divorcees”.

Pension sharing orders, introduced in 2000, allow a specified proportion of one party’s pension rights to be transferred into a separate pension arrangement in the name of the other party. Pension sharing orders allow pension assets to be divided in specie, avoiding the need to try to compare the value of a pension with the value of other types of asset – an approach known as offsetting.  

Offsetting is sometimes unavoidable, typically limited assets mean the wife needs to keep the family home to house the children, which is then balanced by the husband retaining his pensions. Although superficially straightforward (and therefore often appealing to clients), offsetting raises significant valuation and risk issues given how fundamentally pension wealth differs from real property. Specialist valuation advice from a Pensions on Divorce Expert is often essential to avoid materially unfair outcomes, particularly where there are defined benefit schemes.

The dominant view in the Family Court is therefore that offsetting should be avoided where possible, and each class of assets dealt with discretely. Often, the appropriate course will be for a pension sharing order to equalise pension assets, either by reference to their Cash Equivalent Value or their estimated income production on retirement, depending on factors including the parties’ ages. However, if significant pensions were already in place before the parties’ relationship that may point away from equal division. The court must also seek to ensure, so far as possible in the circumstances, that the division of pensions will allow both parties needs to be met in retirement.  

Nevertheless, the evidence suggests that pension sharing orders remain under-used. According to the Fair Shares research, in cases where one or both parties had a pension not yet in payment, pension sharing orders were only made around 1 in 10 cases. The researchers attributed this outcome to a “lack of awareness, understanding or interest” in pensions.  

The latest Family Court statistics add weight to the concern. In 2024, there were 111,227 applications for divorce but only 45,563 financial applications. In 2025, there were 109,817 divorce applications and 49,067 financial applications. Whilst this suggests an increasing number of divorcing couples are engaging with the financial remedy system, the disparity indicates that many divorcing couples do not obtain a financial order following their divorce, meaning there was no pension sharing.   

Addressing this gap in awareness and understanding is therefore an important part of the adviser’s role when supporting clients through divorce, for both lawyers and financial advisers. Lawyers can identify the legal options, whilst financial advisers can talk clients through the importance pension provision can have for their long‑term financial security, and the implications of prioritising one asset class over another in the financial settlement.

The data suggests that pensions remain insufficiently prominent in divorce decision‑making, notwithstanding their long‑term importance. Ensuring that pension provision is identified early and considered alongside more immediate concerns is therefore essential if financial settlements are to achieve lasting fairness. That requires effective collaboration between legal and financial professionals, working together to ensure clients can make informed decisions for their future.

By Henry Hood, Senior Partner at Hunters Law LLP