Divorce and separation

The pension is probably worth more than you think

People focus on the house because it's visible. Pensions are frequently worth as much or more, and they're routinely undervalued in settlements — particularly by whichever partner doesn't have one.

All pensions count, including ones built before the marriage, and the State Pension can be relevant too. Both parties should obtain valuations of everything.

Three ways to deal with a pension

Pension sharing splits the pension at the point of divorce. A percentage transfers into the other person's own pension, giving both parties independent pots and a clean break. It's usually the preferred approach because nothing remains linked afterwards.

Offsetting trades the pension against other assets — one keeps the pension, the other keeps more of the house. Simple and common, and it's where mistakes cluster. A pound of pension is not a pound of house: pensions are taxable on withdrawal, inaccessible until 55, and a defined benefit pension's transfer value may substantially understate what the income is actually worth. Offsetting on face values usually favours whoever keeps the pension.

Attachment or earmarking directs part of the pension income to the other party when it's eventually drawn. It leaves the two of you linked for decades, it usually stops on remarriage or death, and it's now rarely used.

On valuations: a cash equivalent transfer value is a starting point, not an answer. For defined benefit schemes — NHS, teachers', local government, civil service — the transfer value can significantly understate the real value of a guaranteed, inflation-linked, spouse-protected income. Where a substantial DB pension is involved, a pension on divorce expert report is usually money well spent. See Understanding a defined benefit pension.

Capital gains tax — the rules changed

This one catches people relying on older guidance.

Transfers between spouses happen at no gain and no loss, so no capital gains tax arises. That treatment used to end abruptly at the end of the tax year of separation, which meant a couple separating in February had weeks to sort out assets or face a tax charge.

Since April 2023 the window is much longer — three years from the end of the tax year of separation, and unlimited where transfers are made under a formal divorce agreement. There are also improved provisions for a partner who retains an interest in the former family home.

Plenty of advice online predates this. If you've been told you must transfer everything before 5 April, check whether that's still true of your situation.

The house

Selling and splitting is cleanest and often the least painful in the long run.

One party keeps it, usually requiring a mortgage in their sole name — which means qualifying on one income, and that's the constraint that decides it more often than anything else.

Deferring the sale until a trigger event, commonly the youngest child finishing education. It keeps children in their home and keeps you financially connected for years, which has its own costs.

Private residence relief and the capital gains position on a home one of you has moved out of are worth checking — see Capital gains tax on property.

The paperwork that still names your ex

This is the part that gets forgotten, and it has consequences years later.

Your will. In England and Wales, divorce doesn't revoke a will — it treats your former spouse as though they'd died before you, but only from the point the divorce is finalised. In the gap between separating and finalising, your existing will still leaves everything to them. Make a new one immediately on separation, not on decree absolute.

Pension expression of wish forms. These aren't governed by your will or your divorce. Trustees follow the form on file, and if it names your ex-spouse from fifteen years ago, that's what they're working from. Update every scheme.

Life insurance beneficiaries and trusts. Same problem. Check who's named.

Joint accounts, joint policies and joint mortgages. Joint life insurance ends up owned by both of you with no obvious answer. Joint accounts pass automatically to the survivor. Joint debt remains joint regardless of what any court order says between you.

Death in service nominations at work.

An hour with this list is worth more than most of the negotiating.

Protection

Separating usually means both of you need cover you didn't before. If maintenance or school fees depend on someone's income, that income needs insuring — and the person receiving the payments should ideally own and pay for the policy, so they control it.

Unmarried partners separating have no claim on each other's assets and no bereavement benefits, which makes private cover more important rather than less. See Where to start with protection.

If you weren't married

Cohabiting couples have almost no automatic financial rights on separation, regardless of how long you lived together or what you contributed. There's no such thing as common law marriage in England and Wales.

Claims are generally limited to property law and to arrangements for children. If you're in this position, the position is worse than most people assume, and it's worth getting proper advice early.

Getting help

Mediation is usually cheaper, faster and less damaging than litigating, and it's a requirement to have considered it in most cases.

A consent order is what makes a financial agreement binding. Without one, either party can make a claim years later — including on assets acquired after the split. An informal agreement is not a settlement.

Financial advice alongside legal advice matters where pensions are significant, because solicitors aren't pension specialists and the offsetting arithmetic is where value is most often lost.

This page is for general education only and isn't personal advice or legal advice. Divorce settlements are difficult to reopen, and pension decisions within them are usually irreversible.