What Are Your Pension Rights in a Divorce in Scotland?

Divorce often revolves around asset division, but pension rights are frequently overlooked. Recent studies reveal this critical oversight, with many divorcing couples neglecting to consider pension values. In this article, we explore the nuances of pension rights in divorce settlements.

Recent research from Legal and General found that 58% of divorcing couples consider the value of their family home, but only 20% consider pensions when dividing assets with their partners and 29% actively waive their rights to their value (learn more).

Earlier research found that women are significantly more likely than men to waive rights to a partner’s pension as part of a divorce (learn more)

For anyone, waiving rights to an ex-partner’s pension can have a long-term detrimental impact. It is important to understand that you do not necessarily need to remove funds from your partner’s pension pot to ensure your claim on its value is taken into account in the overall settlement.

The starting point in Scots Law is to consider whether a pension is “matrimonial property” as defined by s.10 of the Family Law (Scotland) Act 1985. In every case, the date of the separation needs to be identified.

In Scotland, we use the Cash Equivalent Transfer Value (CETV) of the pension to determine the value of the pension, which is matrimonial property. This is the value of the pension that could be transferred out at the date of separation. If the pension is in payment, then we use the Pension Equivalent Transfer Value (PETV). The pension administrators are asked to provide this for you.

If a pension has begun prior to the marriage, then a proportion of the pension will be part of the matrimonial pot which is to be divided. It is only the proportion of the pension that has accrued during the marriage that is “matrimonial property”. An apportionment calculation is carried out to determine this value.

In 2017, the decision of the Supreme Court in McDonald v McDonald (https://www.supremecourt.uk/cases/docs/uksc-2016-0015-judgment.pdf) clarified that even where a party had made no active contributions to a pension during the marriage, it is the period of membership of the pension which is taken into account, active or otherwise.

The value of the pension may be a part of the total net matrimonial property to be divided. The starting point in Scots Law, in accordance with s.9 of the Family Law (Scotland) Act 1985, is that the net matrimonial property will be shared fairly between the parties. If there are “special circumstances”, an unequal sharing may be justified. There are also a number of principles within s.9 of the 1985 Act that can be applied to the division of the net matrimonial property.

There are three main options available when it comes to dealing with claims on a partner’s pension on divorce. The first is to offset the claim you have on the value of another asset. Where one party wishes to keep their pension intact, then this may prove to be an acceptable resolution. The other party’s claim on the value of their pension could be offset, for example, by them receiving more from the sale proceeds of the family home or in exchange for the transfer of the family home.

The second option is a pension share. A credit comes out of the pension fund and is transferred into a pension pot of the other person’s choosing. There are advantages and disadvantages to this. Whether a pension share is appropriate will depend on the circumstances of each case and the age and asset distribution of the parties. Financial advice is needed.

If the pension share has been agreed as part of a negotiated settlement, the procedure and provisions about this will be set out in the Minute of Agreement that each party will sign. The Minute of Agreement is sent to the pension administrators for their approval before it is signed. After the Minute of Agreement has been signed, a divorce needs to be applied for and granted in order for the pension share to be implemented. There are strict timescales for the correct documentation to be provided to the pension administrators after the Divorce is granted and for the pension share to be implemented. If the correct procedure is not followed, there is a risk that the pension share cannot be implemented.

The third option is an earmarking order. This is when credit comes out of the pension when the person whose pension it is reaches pensionable age. This is rarely used, as it does not achieve the clean break that we aim for in any financial settlement.

Pensions are very often the highest-value assets in the matrimonial pot. Given auto-enrolment, more often than not, they need to be taken into account when considering what forms the matrimonial property. Waiving a claim to your ex-partner’s pension can create a significant financial disadvantage.

Our Head of Department and Director, Judith Higson, and Senior Associate Director, Nicola Buchanan, are both Accredited Family Law Specialists, Accredited Mediators and Collaboratively Trained Solicitors. We have a wealth of experience spanning several decades to meet all of your family law needs and are ably assisted by our Solicitor, Laura Cousins, and Paralegal Liz Semple. We can be contacted on 0141 374 2121 or info@scullionlaw.com. You can also contact us via our online enquiry form and a friendly member of our Client Care Team will get back to you as quickly as possible.

The content of this article is for information only and is not intended to be construed as legal advice and should not be treated as a substitute for specific advice. Scullion LAW accepts no responsibility for the content of any third-party website to which this article refers.