Pensions are usually the largest asset of the marriage and should not be ignored. Divorcing spouses are often unaware of their rights and how they should deal with the split of pension assets in a fair and reasonable way.
The Pension Advisory Group
For 20 years, Pension Sharing Orders have been available. The complexities of pensions on divorce have recently been recognised by The Pension Advisory Group. This group consists of lawyers, actuaries and financial advisors who have come together to share their thoughts and understanding of pensions and have, after 2 years, recently produced ‘A Guide to the Treatment of Pensions on Divorce’. This document is 161 pages in length which speaks volumes for how complex pensions are and how there are significant variations of how the Courts up and down the Country deal with them. The aim of this guide is to help Judges and Practitioners understand issues relating to pensions in divorce cases, provide more detailed information and ultimately improve fairness when incorporating pension considerations into financial remedies.
Methods of division
On Divorce, there are 3 ways of dealing with your Pension: –
1. By way of a Pension Attachment Order- this is a type of maintenance order which obliges the pension scheme to pay a certain percentage of the monthly pension payments and/or cash lump sum paid out on retirement to the other party.
2. By way of a Pension Sharing Order- this means that some or all of the pension fund that exists at the time of the Divorce is divided and you each have separate funds.
3. Offsetting- this means giving someone more of the non-pension assets instead of making a pension sharing or pension attachment order in their favour.
How do you deal with Pensions fairly on Divorce?
Firstly, you need to obtain the Cash Equivalent Value (CEV) of your pension from the provider. Immediately, difficulties arise because you need to ascertain whether the CEV represents a true value of your pension for Divorce purposes. For example, if all of the pensions are Defined Contribution Schemes with no guarantees and you are a similar age, it may be appropriate to share your pensions based upon their CEV. However, complicating features may arise and require a Pensions Expert to advice the parties and assist the court. This can arise where there is a uniformed-service pension, where there is a choice of schemes to be transferred, and where combined Defined Benefit pension CEV’s exceed £100,000. There are numerous other reasons highlighted in the Report.
The test for the instruction of an Expert is that the instruction must be ‘necessary’ to assist the Court to resolve the proceedings. Given how complex pensions are, the instruction of an Expert is often deemed necessary to deal with the pensions in an accurate and fair way.
Krista Enziano is a Solicitor in the Family Department at O’Donnell Solicitors. For more information or a second opinion, please contact her on 01457 761320 or email krista@odonnellsolicitors.co.uk
