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Pensions on Divorce


Pension Sharing on Divorce

After the former matrimonial home, a pension entitlement is often the next largest asset in a marriage. The law was changed in December 2000 to allow a pension sharing order. The Court has powers to order this on divorce, nullity and the dissolution of a civil partnership agreement.

In the financial application on divorce (ancillary relief) couples are required to supply a cash equivalent transfer value (CETV) from their pension trustees. This is an assessment of what their pension is worth on the open market.

Pension Assets Not Available Capital

This is not to be viewed in the same way as other assets. It is not realisable cash, however the longer the marriage and the older the parties the more important the CETV becomes.

A practice has grown in some courts to attribute a certain value to the CETV. It is divided by either a third or a quarter and the total assets available for distribution are calculated accordingly.

The larger the fund the more important it is to ensure the CETV is accurate. Expert advice is needed and an actuary’s report should be considered, provided the cost is proportionate.

Changes to Pension Law

The rules relating to pension provision were overhauled by the Government on 6th April 2006. The changes will particularly affect high earners, and those who have been in a final salary scheme for a long time, because one of the new rules limits the amount of pension savings to a “lifetime” allowance. Expert advice is needed about how these changes may affect an asset assessment on divorce.

The Right CETV

Although the court can only consider the CETV when assessing the value of a pension fund, it can take other evidence into consideration about how accurate the CETV is.

Some pension trustees attribute a low value to the CETV because they are cautious in assessing their ongoing costs and fund growth and no account may be taken of the costs of a widower’s/widow’s pension or dependent’s pension or whether a pension is index-linked. A final salary scheme is of particular value.

Complex Pension Assessment

Due to the complexities and difficulties involved in obtaining a fair and accurate assessment it is worthwhile obtaining an actuary’s report as the Courts will take these into consideration. It is important that anyone obtaining a pension sharing order has independent financial advice about where to invest the fund.

Offsetting

Often a valuation attributed to a pension fund is offset against other assets, which is when the third or quarter assessment is used.

Pension Attachment

Previously known as Pension Earmarking, Pension Attachment allows the Court to make an Order directing the Pension Trustees to pay a percentage of the lump sum or pension on maturity to the person named in the Order.

A Pension Attachment Order will cease if the pension holder dies and the income payment will end if the recipient remarries, it does not create a separate fund for the recipient and consequently Pension Attachment Orders are unpopular given that the courts are able to make a Pension Sharing Order.

The benefits of Pension Attachment Orders include: 

  • A Pension Earmarking Order can be made in judicial separation proceedings.
  • Pension Attachment Orders provide a way to include the death in service benefits under a pension scheme.
  • If the pension holder continues to make contributions into the pension fund after the Order is made then the recipient’s share will continue to grow.

Pension Sharing Order

A Pension Sharing Order creates a separate fund and the recipient receives a pension in his or her own right. The recipient may be able to remain a member of the pension holder’s pension fund (depending on the rules of the scheme and the financial advice obtained) or may transfer to a new pension fund.

  • A Pension Sharing Order can be made upon Decree Nisi but takes effect when Decree Absolute has been granted.
  • An Order of the Court is necessary to implement a pension share; it cannot be done by agreement.
  • A Pension Sharing Order cannot be made on a pension which is already subject to a Pension Attachment
  • The pension scheme is entitled to charge up to £750.00 for administering the Pension Sharing Order.

Pensions in Payment

A recent case in the court of Appeal, Martin-Dye v Martin-Dye has highlighted the difference between a pension in payment and other assets. The ruling stated that the CETV of a pension in payment should not be used in the calculation of the division of assets. It was not an asset that could be sold or used in any way other than as an income stream. A fair division was to distribute the capital on the percentage basis that the lower court had ruled and distribute the income from the pension on the same percentage basis.

Lynne Bastow Divorce Solicitor

Meet Lynne Bastow

With over 13 years experience, Lynne can provide excellent and valuable advice and has a friendly, positive approach towards all her clients, ensuring you get the best service possible.

Read Lynne's Books

If you need more information on divorce, Lynne has published two informative guides on divorce, which you can purchase from Amazon.

The Little Book of Divorce

The Little Book of Divorce

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The Little Book of Divorce Dilemmas

The Little Book of Divorce Dilemmas

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