For most separating couples, pensions are the asset that often gets forgotten. It does not sit in a bank account, you cannot spend it now, and the annual statement is easy to file away unopened. Yet a pension built up over twenty or thirty years can be worth more than the equity in your house and, in Scotland, it forms part of the pot that has to be divided.

Does my spouse get half of my pension?

Only matrimonial property is treated as available for sharing in Scots law. For a pension that means the part built up between the date of the marriage and the date of separation. Anything accrued before the wedding, or after you stopped living together, is generally left out.

This is a real difference from England and Wales, where the whole pension can be brought into consideration. In Scotland, the exercise is done scheme by scheme, and someone who joined a pension at twenty-two and married at thirty-five may find a large part of their fund never enters the discussion at all.

Fair sharing does not automatically mean an equal split, but equal sharing of the matrimonial portion is the starting point. Our article on how assets are divided on separation looks at that principle in more detail.

Which dates count?

The relevant date is normally the day the two of you stopped living together as a couple. If a court action is raised and the summons is served before that, whichever date comes first applies. 

Getting this right matters more than people expect. Shift the date by a year and you can shift the value of the pension share by thousands of pounds, which is why a disputed separation date tends to be one of the first things a solicitor will want to pin down.

How is a pension actually valued?

The starting figure is the cash equivalent transfer value, which the scheme will supply on request. Schemes are allowed up to three months to produce it, so ask early. That figure is then apportioned using a straight-line calculation set out in regulations. In plain terms, the transfer value is multiplied by the length of the marriage and divided by the total length of your membership of that scheme up to the relevant date.

One point catches almost everybody out. Membership means membership, not contributions. If you joined a scheme, stopped paying into it and left the fund sitting there, those dormant years still count towards the total membership period. The Supreme Court settled that argument some years ago, and the answer was not the one many practitioners had expected.

Now say the same person as above stopped paying into their scheme in 2012, two years into the marriage, and simply left it alone afterwards. It makes no difference to the answer. The fourteen years of dormant membership still count, and the figure is still £160,000. Had only the contributing years counted, it would have been closer to £43,000. That is the difference the Supreme Court's decision makes, and it runs in favour of the spouse without the pension.

Defined benefit schemes deserve particular care. The NHS, teachers, police and local government schemes are common across East Lothian, and a transfer value for those is an actuarial estimate rather than a pot of money. It does not always capture what the benefit is genuinely worth to the member, and in larger cases an independent actuarial report is money well spent.

What are the options for dealing with it?

'Pension sharing' transfers a defined slice of your fund into a pension in your former spouse's own name. It delivers a clean break, and afterwards neither party is affected by the other remarrying or dying. In Scotland the share can be expressed either as a percentage or as a fixed cash sum, which is a useful piece of flexibility. Schemes are entitled to charge for implementing a share, so ask what the charge will be before you agree who is paying it.

'Offsetting' means one of you keeps the pension intact while the other takes a larger share of the house or savings. It avoids the cost and delay of a share, but it is only ever as good as the valuations behind it. Trading away a slice of an index linked public sector pension in return for equity in a house is not always the like for like swap it appears to be. 

'Earmarking', where part of the pension is paid across only when it comes into payment, still exists but is rarely used now.

Do we have to go to court?

No, and most people do not. Scotland has a genuine practical advantage here. A pension share can be built into a Minute of Agreement drawn up by your solicitors and registered in the Books of Council and Session, and the scheme will act on it without a court order. Registration is not optional where a pension is being shared, because providers will not implement an agreement that has not been registered.

The timing trap nobody warns you about

In Scotland, financial claims must be made before the decree of divorce is granted. 

Once the divorce comes through, the right to claim is gone. There is no returning in two years to ask for a share of a pension you overlooked. It is also why the simplified, do it yourself divorce procedure is not open to anyone with financial matters still to resolve.

A second deadline sits behind the first. Where a pension is being shared, the paperwork generally has to reach the scheme within two months of the divorce decree, failing which the share can be treated as never having taken effect. A court can extend that period, but it is not an application anyone wants to be making.

What about the State Pension?

For the most part it cannot be shared. The basic State Pension and the new State Pension both sit outside the pension sharing regime. The exception is a protected payment, an additional amount some people receive on top of the new State Pension, which can be shared. Entitlement under the older additional State Pension arrangements can also be shared, though in practice that is treated as a last resort.

The paperwork people forget afterwards

Divorce in Scotland automatically cancels any provision in your Will in favour of your former spouse and cancels a survivorship clause in a title deed in their favour. Separation does not do either of those things and, given how long a Scottish divorce can take to come through, there can be a lengthy window during which an out of date Will remains perfectly effective.

Pension death benefit nominations are different again, because nothing cancels them automatically. If you nominated your spouse fifteen years ago and never revisited it, that form is still sitting with your scheme. Trustees usually retain a discretion, but they will give the nomination real weight. Updating it takes ten minutes. If it has been a while since you looked at your Will, this is the moment to do both.

How Paris Steele can help

Pensions are the part of a separation where early advice pays for itself many times over. Our Family Law team can help you identify what may need to be shared, obtain and sense check the valuations, and weigh a pension share against the alternatives before anything is signed. We can deal with the wider financial issues on divorce at the same time and put your Will and nominations back in order once matters are settled.

If you are separating, or you have separated and pensions have not yet been discussed, please get in touch. Call our North Berwick office on 01620 892138 or our Dunbar office on 01368 862746.

This article is provided for general information purposes only and is not intended to constitute legal advice. The information contained in this article is accurate to the best of our knowledge as at the date of publication. As laws, regulations, guidance, and other relevant information may change over time, the content of this article may no longer reflect the current position.

The information contained herein may not apply to your specific circumstances and should not be relied upon as a substitute for professional legal advice.

If you require advice about your own situation, we recommend that you seek advice from a qualified solicitor. If you would like to discuss your circumstances or find out how we may be able to assist, please do not hesitate to contact our team for advice tailored to your individual needs.