Divorce law for pensions differ between Scotland and the rest of the UK but there remain three main methods for the division or accounting of pensions:
Gives the ex-spouse a share of an asset equivalent to the appropriate value of the agreed share of the member's pension
(Earmarking Order in Scotland) is effectively deferred maintenance, giving the ex-spouse a portion of the member's pension built up during the marriage
Pension sharing could apply to any divorce where proceedings commenced on or after 1 December 2000 with the aim to separate the ex-spouse's pension entitlement from the member's pension so there is a clean break. It is generally the preferred option for clients who have insufficient assets to offset their pension, or have other assets they want to keep. The main difference between an attachment order and sharing is that there is a legal transfer of ownership under pension sharing.
After the sharing order comes into effect, an implementation period of four months applies by which time the provider or trustees must have discharged the order by way of an internal or external transfer. The receiving spouse/civil partner will own the pension share and can manage it as they wish. The ex-spouses/civil partner's share of the pension is called a pension credit if paid from uncrystallised funds or a disqualifying pension credit if paid from crystallised funds. The reduction in the member's pension as a result of the pension share order is called a pension debit.
The amount of pension to be transferred should be expressed as a percentage of the cash equivalent transfer value (CETV) therefore the actual amount of the pension credit will not normally be known until the court order is finalised, unless a monetary amount is set.
The pension share can be received by:
The option offered will depend on the type of pension scheme the member is in. In practice, it is likely that most funded arrangements will prefer to offer a transfer rather than offering membership and private pension schemes must offer the option of a transfer. Unfunded schemes, like some of those in the public sector, are more likely to offer scheme membership only. For some of these schemes this is the only option they offer. Some schemes may choose to offer both. The approach taken must apply to the scheme as a whole. A different approach for specific members or circumstances is not allowed.
Where a transfer is to be made, the ex-spouse/civil partner must advise the provider or trustees of a suitable pension plan to receive their pension credit. If this is not done, it may be possible to transfer the benefits into a buy-out policy (usually for DB pension schemes) or some other default option specified within the scheme rules. If scheme rules don't include a default option and the pension sharing order remains in limbo, the member may have to go back to court to vary the order.