Pensions: What Happens If We Separate?

If I separate from my husband or wife and we do not divorce, what happens to our pensions? How separated are we?

If there is not going to be a Financial Order made after Decree Nisi of Divorce and which takes effect after Decree Absolute, then it is not possible for a pension to be shared. In the meantime if one of you turns 55 years they would be able to utilise the new pension freedoms and take the pension as cash (subject to any taxation consequences if taking more than 25% of the fund) although that does not apply to final salary pensions.

It should be recognised that if you are still married, although separated, the Widows Rights payable under the pension scheme (and which may be a significant asset) may still be payable. However, the rules of the scheme must be checked to ensure the definition of “spouse” includes a separated spouse!

Even if you are not getting divorced, it is important to enter into a Deed of Separation to record any financial agreements that have been reached. This will stand as evidence as to financial arrangements should in any subsequent divorce proceedings one party try to deny a concluded agreement and seek a greater share of the assets.

However, a Separation Agreement will not give a definite financial clean break nor be able to deal with pensions. For there to be a Pension Sharing Order, that is to say an Order carving out a percentage of one party’s pensions or an Attachment Order, then that requires a Court Order.

If Judicial Separation proceedings were undertaken and which is quite rare, then an Order could be made providing a clean break in terms of current maintenance and current/future capital demands. The Court could also make Pension Attachment Orders requiting one party to pay a percentage of their pension income and/or lump sum and/or death benefits to the other party when it becomes payable. The scheme member can also be forced to agree a date when they will “retire” so that there is surety of the date of payment.

Pension Sharing Orders are not available so you both remain tied to an extent. There is also not a clean financial break because it does not enable the Court to make a true clean break Order. There, remains the potential for a future application for maintenance.

However, whether by merely separating and entering into a Separation Agreement, divorcing or undertaking Judicial Separation proceedings, it is possible to deal with the other assets and which include offsetting the value of pension resources against other assets.

My own view is to avoid Judicial Separation proceedings unless there are particular religious objections to being divorced. The procedure and costs are pretty much identical to the divorce process and yet still the marriage is not dissolved. It is not said to have irretrievably broken down and you would not be free to remarry in the future!

It is worth remembering that provided the separation continues and there is a formal Decree of Judicial Separation in force should one party die without a Will then their property would be treated as if the other was already dead. That is they wont get anything. If a Will is in place the marriage has not been dissolved and therefore any gift to that surviving separated spouse would survive.