When you're going through a divorce, you're dealing with emotional stress, major life changes, and complex financial decisions all at the same time. It's hardly surprising that mistakes get made. Unfortunately, when it comes to pensions, mistakes can be extremely costly and, in many cases, impossible to fix once your divorce is finalised.
This article explains the ten most common and most expensive mistakes people make when dealing with pensions in divorce, and more importantly, how you can avoid making them yourself.
Ignoring pensions entirely
This is the biggest and most common mistake, and it's also the most costly. Many people focus on dividing the house and other immediate assets whilst overlooking pensions completely. This happens for all the reasons we've discussed in previous articles – pensions feel abstract, their value is hidden, they seem complicated, and people focus on immediate needs rather than retirement that might be years or decades away.
But ignoring pensions during your divorce can be one of the most expensive mistakes you ever make. For many couples, pensions are their most valuable asset, worth more than the family home. If you don't address them in your divorce settlement, you could face serious financial hardship throughout your retirement.
This mistake often hits hardest the person who stayed home to raise children or who worked part-time. They end up with little or no pension provision, watching their ex-spouse retire comfortably on a pension that was built during the marriage whilst they struggle to manage on the State Pension alone.
How to avoid this mistake
Always identify and value all pensions as part of your divorce. Don't let them be an afterthought. Pensions should be at the top of your list when considering your financial settlement, not something you deal with only if there's time left after sorting out the house and other assets.
Make sure pensions are properly addressed in your financial settlement, whether through pension sharing, offsetting, or another arrangement. Don't finalise your divorce without a clear agreement about how pensions will be dealt with.
Assuming "what's mine is mine"
Some people believe that because they earned their pension through their own work, they should keep it all. This is a fundamental misunderstanding of how divorce law works.
Pensions earned during the marriage are usually considered matrimonial assets to be shared, just like the house or savings. The law recognises that marriage is a partnership where both parties contribute, whether financially or through other roles such as childcare and homemaking. If one person was able to build up a pension because the other person was running the home and raising the children, both contributions have value.
Taking the position that "it's my pension, I earned it, I'm keeping it" is likely to result in court proceedings that could have been avoided, with the associated costs and stress. The court will almost certainly order the pension to be shared anyway, but by then you'll have spent money on legal fees that could have gone towards your settlement.
How to avoid this mistake
To avoid this, approach pensions as part of the overall financial picture that needs to be divided fairly, taking into account all the circumstances of your marriage. Recognise that both parties have contributed to the marriage in different ways, and pensions built up during the marriage reflect those joint contributions.
If you're concerned about protecting pension that you built up before the marriage, or if there are other factors that mean an equal split wouldn't be fair, discuss this with your solicitor. There may be legitimate reasons to depart from equal sharing, but "it's mine because I earned it" is not one of them.
Accepting a CETV at face value
For defined benefit pensions, particularly public sector pensions, the Cash Equivalent Transfer Value often significantly undervalues the pension. If you accept a settlement based on CETVs without questioning whether they represent the true value, you might agree to an arrangement that's fundamentally unfair.
This mistake is particularly common when one spouse has a public sector pension (NHS, teachers, civil service, police, armed forces, local government) and the other spouse either doesn't understand how valuable these pensions are or assumes the CETV must be accurate because it's an official figure from the pension provider.
The consequence of this mistake can be devastating. You might agree to a 50/50 split of CETVs thinking you're being fair, only to discover in retirement that your spouse has pension income that's double or triple yours because the CETV substantially undervalued their defined benefit pension.
How to avoid this mistake
Get expert advice on whether the CETV represents the true value, particularly for defined benefit pensions and especially for public sector pensions. A Pension On Divorce Expert can assess whether the CETV is fair and advise on what settlement would genuinely be equitable.
Compare what the pension will actually provide in retirement with the CETV. If a pension has a CETV of £200,000 but will provide £25,000 per year for life, question whether the CETV is capturing the full value. Don't just accept the numbers at face value.
Choosing offsetting without proper advice
Taking a bigger share of the house instead of a pension share might seem attractive, especially if you need somewhere to live. However, this can leave you without income in retirement. Property doesn't provide pension income, and many people who accept offsetting arrangements find themselves in retirement living in valuable houses but struggling financially because they have inadequate pension income.
This mistake often happens because people focus on immediate needs rather than long-term security. The desire to keep the family home, or to have enough capital to buy somewhere to live, is entirely understandable and often pressing. But accepting capital now instead of a share of pension can be a serious mistake that you'll regret for the rest of your life.
The problem is compounded when the offsetting is based on a CETV that undervalues the pension. You might think you're accepting £300,000 worth of house in exchange for £300,000 worth of pension, but if that pension will actually provide income worth £600,000 over a 30-year retirement, you've given up far more than you received.
How to avoid this mistake
Understand the long-term implications of any offset arrangement before agreeing to it. Get proper financial advice about what your retirement will look like if you accept capital instead of pension. An independent financial adviser can model different scenarios and show you, in pounds and pence, what income you'll have at different ages in retirement.
Consider whether you'll have adequate income in retirement if you give up a share of the pension and try not to let the immediate need for housing blind you to the long-term need for income. You might end up asset-rich but income-poor, which is one of the worst financial positions to be in during retirement.
If you do accept offsetting, make sure the offset is fair and reflects the true value of what you're giving up. Pension income with tax advantages and guaranteed increases is worth more than an equivalent paper value in property.
Forgetting about the State Pension
While the State Pension can't be shared through a Pension Sharing Order, it should still be taken into account when negotiating your settlement. One person may have a full State Pension entitlement whilst the other has gaps in their National Insurance record, and this imbalance may affect how other assets should be divided.
This mistake often affects people who took time out of work to raise children or who worked part-time. They may have significant gaps in their National Insurance record and might not receive a full State Pension. If this isn't addressed as part of the divorce settlement, they could find themselves with very little income in retirement.
How to avoid this mistake
Check your State Pension forecast at www.gov.uk/check-state-pension to see what you're entitled to. Do this early in the divorce process so you know where you stand.
Consider whether gaps in your National Insurance record should be addressed as part of the settlement. You may be able to make voluntary National Insurance contributions to fill gaps, and it might be appropriate for this to be provided for in the divorce settlement.
Make sure the difference in State Pension entitlements is taken into account when dividing other pension assets or other matrimonial assets. If your spouse will receive a full State Pension of around £12,000 per year and you'll receive only £6,000 because of gaps in your record, this should be reflected in how other assets are divided.
Not getting the Final Order
The Pension Sharing Order cannot be implemented until you have your Final Order of divorce (previously called the Decree Absolute). Some people forget to apply for this, or delay doing so, which means the pension sharing cannot proceed even though the settlement has been agreed and approved by the court.
This might seem like a minor administrative matter, but it can cause significant problems. Time passes, pension values change, and in extreme cases, one party might die before the pension sharing is implemented. If the pension holder dies before the Final Order is granted and the Pension Sharing Order is implemented, the receiving spouse may get nothing.
How to avoid this mistake
Apply for your Final Order as soon as the appropriate time has passed after the Conditional Order (previously called the Decree Nisi). Make sure you actually receive it – the Final Order doesn't happen automatically just because you've applied for it.
Once you receive your Final Order, immediately take steps to implement any Pension Sharing Order. Your solicitor should serve the order on the pension provider without delay.
Failing to update death benefit nominations after divorce
After divorce, old death benefit nominations may still be in place naming your ex-spouse as the beneficiary of your pension. If you die without updating these nominations, your pension benefits might go to your ex-spouse instead of your children or new partner.
This mistake usually happens because people simply don't think about death benefit nominations after divorce. They sort out their will, they update their life insurance, but they forget about their pensions. Years later, when they die, their family discovers that the pension death benefits are going to someone they divorced years or even decades ago.
How to avoid this mistake
Contact all your pension providers after your divorce is finalised and update your death benefit nominations. Make sure your pension benefits will go to who you want them to (such as your children, your new partner, or other beneficiaries) rather than defaulting to your ex-spouse.
Put a reminder in your diary to review your pension death benefit nominations regularly, particularly if your circumstances change (such as remarriage or the birth of grandchildren). Death benefit nominations can usually be updated at any time, and it's sensible to review them periodically.
Not seeking expert advice when you need it
Pensions are complex, and mistakes can be costly. Some people try to handle everything themselves or accept whatever arrangement their spouse proposes without getting proper legal and financial advice. This often results in agreeing to settlements that are unfair or that don't properly protect their interests.
The temptation to save money on legal fees is understandable, particularly when you're facing all the costs associated with divorce. However, the cost of getting pension matters wrong far exceeds the cost of getting proper advice. If you agree to a settlement that leaves you £5,000 per year worse off in retirement, that's £150,000 over a 30-year retirement. Spending a few thousand pounds on proper legal and pension advice to avoid this outcome is money well spent.
How to avoid this mistake
Instruct a specialist family lawyer who has experience dealing with pensions in divorce. Don't choose a solicitor based solely on cost. Expertise in this area can save you far more than you spend on good advice.
Get advice from a Pension On Divorce Expert for complex or high-value pensions, particularly defined benefit pensions and public sector pensions. Their specialist knowledge can be crucial in ensuring you receive a fair settlement.
Consider consulting an independent financial adviser who specialises in divorce. They can help you understand the implications of different settlement options and plan for your financial future after divorce.
Not checking for all pensions
People often forget about old pensions from jobs they held years or decades ago. These forgotten pensions can be valuable, and failing to identify them means they're not included in the financial settlement. You might have several small pensions from different jobs throughout your career, and whilst each one might not seem significant, together they could add up to a substantial amount.
Your spouse might also have forgotten pensions, or in some cases, might conveniently forget to mention them. Either way, if a pension isn't disclosed, it can't be dealt with properly in the settlement.
How to avoid this mistake
Use the government's Pension Tracing Service at www.gov.uk/find-pension-contact-details to track down any old pensions you might have forgotten about. This service is free and can locate pensions from previous employers.
Think carefully about your entire work history and list every job where you might have had a pension. Even jobs you held for relatively short periods might have generated pension entitlements that are still sitting in a pension scheme somewhere.
Require your spouse to do the same. Full disclosure means all pensions, including old ones that might seem insignificant. Make sure your spouse uses the Pension Tracing Service and provides details of all their employment history.
Check for Additional Voluntary Contributions that might be held separately from the main workplace pension. These are easily overlooked but can be valuable.
Rushing the process
Getting proper pension valuations takes time, particularly for defined benefit pensions which can take several weeks or even months to value. Getting expert advice also takes time. Some people, eager to finalise their divorce and move on with their lives, rush this process and agree to settlements based on inadequate information.
The pressure to reach a quick settlement can come from various sources. Your spouse might be pushing for a fast resolution. You might be emotionally exhausted and just want it to be over. Court deadlines might be looming. Financial pressures might be mounting. All of these create pressure to agree to something quickly rather than taking the time to ensure it's right.
However, the consequences of a rushed settlement can last for the rest of your life. If you agree to something quickly and later realise it was unfair, it's too late to change it. Pension Sharing Orders cannot be varied once implemented.
How to avoid this mistake
Start the process of obtaining pension valuations as early as possible in your divorce. Don't wait until you're close to a court hearing to request CETVs from pension providers. The earlier you start, the more time you'll have.
Resist pressure to agree to a settlement before you have all the information you need. Your long-term financial security is more important than resolving things quickly. A few extra weeks or months to get proper valuations and advice is time well spent.
Be particularly cautious if your spouse is pushing hard for a quick settlement without proper valuations. This might indicate they know or suspect their pension is worth more than they're acknowledging.
If you're facing court deadlines, ask your solicitor to seek an adjournment if necessary to allow time for proper valuations and advice. Courts understand that pension valuations take time, and they would rather have accurate information than rushed decisions.
The common thread
Looking at all these mistakes, there's a common thread running through them. They almost all stem from not taking pensions seriously enough, not understanding how valuable they are, not getting proper information about their worth, and not seeking expert advice when needed.
Pensions in divorce require attention, time, proper valuations, and expert advice. They cannot be an afterthought. They cannot be dealt with quickly or superficially. The stakes are too high.
Your pension provision (or lack of it) will affect your quality of life for potentially 30 or 40 years of retirement. Getting it wrong means decades of financial struggle and getting it right means financial security and peace of mind.
This information is for guidance purposes only and does not constitute legal advice. We recommend you seek legal advice before acting on any information given.
