What you need to know about pensions, spousal maintenance, and inheritance

When a marriage ends, dividing finances fairly requires more than just splitting the family home. Some of the most significant – and often most misunderstood – issues involve pensions, spousal maintenance, and inheritance. Each of these raises complex questions about fairness, need, and long-term security. Understanding how they are treated by the family courts can help you make informed decisions, protect your future, and avoid costly mistakes when reaching a financial settlement.

Pensions

Pensions can be among the most valuable assets in a marriage, yet they are often the most misunderstood and overlooked.

Many people focus on the family home when dividing finances, but in long marriages, a pension can be worth just as much – sometimes more. It is therefore vital to understand how pensions are treated on divorce and what your options are before reaching any agreement.

Why pensions matter

A pension is not simply a future income stream; it represents years of accumulated savings and investment. The law recognises that a spouse who stepped back from work to raise children or support the family may have lost valuable pension contributions during that time.

For this reason, the court treats pensions as part of the overall matrimonial “pot” that needs to be fairly divided, alongside property, savings, and other assets. How that division happens depends on things such as the length of the marriage, the nature of the pension, and the needs of each party.

Three main approaches

There are three main ways pensions can be dealt with during divorce:

1. Pension Sharing Order
   This is the most common method. The court orders that a specific percentage of one party’s pension is transferred into a pension in the other party’s name. The receiving spouse gains independent control over their own pension fund.
2. Pension Attachment Order (formerly “Earmarking”)
   Under this order, one spouse receives a percentage of the other’s pension income or lump sum when it is eventually paid out.
3. Offsetting
   Instead of splitting the pension directly, the parties agree to “offset” its value against another asset – for example, one spouse keeps a larger share of the equity in the family home in exchange for the other retaining their full pension. This can feel practical, especially where there is a clear housing need, but it can be risky. Cash and pensions are not like-for-like: £100,000 in a pension does not equal £100,000 in the bank. Pensions are subject to tax, investment performance, and cannot usually be accessed until later in life.

Understanding pension valuations

Each pension scheme can produce a Cash Equivalent Transfer Value (CETV) – an estimate of what the pension would be worth if transferred. However, CETVs can sometimes be misleading, particularly for final salary or defined benefit schemes, which may understate the true value of guaranteed future income.

For complex cases, it is strongly recommended to instruct a Pension on Divorce Expert (PODE). A PODE can:

• Analyse the underlying scheme benefits;
• Provide equality of income, capital, or offsetting calculations; and
• Model different settlement scenarios to achieve fairness on retirement, including excluding pre-marital pensions.

Their advice can be especially important where one spouse’s pension is a defined benefit or public-sector scheme (such as the NHS, armed forces, or teachers’ pension).

Because pensions are complex, tax-sensitive, and highly technical, you should always obtain early legal advice before agreeing to any division. A fair settlement should not only address immediate housing and income needs but also provide long-term financial security for both parties at retirement.

Getting the pension aspect right can make the difference between a fair division now – and financial hardship later.

Spousal maintenance

Spousal maintenance (also called periodical payments) is financial support paid by one ex-spouse to the other after divorce.

There is no automatic entitlement. Maintenance is based on need, and the court will look at:

• Income and earning capacity of each party;
• Future prospects and childcare responsibilities; and
• The standard of living during the marriage.

Orders can be:

• Joint lives (until death or remarriage – now rare);
• Term orders (for a fixed, sometimes extendable, period);
• Nominal orders (e.g. £1, to preserve the right to claim later); or
• Capitalised lump sums (a one-off lump sum payment to achieve a clean break).

Spousal maintenance may be varied if circumstances change. The court must always consider whether a clean break is possible.

Inheritances and non-matrimonial assets

For spouses concerned about protecting family wealth, the treatment of inheritance depends on how it has been used.

Generally, inheritance is classed as non-matrimonial property – belonging to the person who received it. However, if it’s mixed into family finances (for example, used to buy a joint property or pay shared expenses), the distinction becomes blurred, and the argument that it is non-matrimonial starts to diminish or disappears altogether.

If both parties’ needs can be met without using inherited funds, the court is likely to leave it untouched. But if one party’s needs cannot be met otherwise, the inheritance may be taken into account.

Each case turns on its facts. The safest way to protect inheritance is to keep it separate and, ideally, record arrangements in a pre- or post-nuptial agreement.

If you have questions or concerns about the division of financial assets in divorce, please contact Yasmin Khan-Gunns and Grainne Fahy.