Who gets the pension on divorce? BLM's family law team answers.
Who gets the pension on divorce?
Pensions are often one of the largest assets if not the largest asset in a marriage. It is therefore of no surprise that the person with the largest pension pot often wants to safeguard it at all costs. The question is, who gets the pension on divorce?
Types of private pensions
Private pensions, in comparison to state pensions (which I will not be dealing with here), can be arranged on an individual basis or through a scheme set up by an employer. There are two basic types of private pensions, a defined benefit (DB) scheme, and a defined contribution (DC) scheme, also known as a money purchase scheme.
In a DB scheme, the benefit that a member will eventually receive is fixed at the outset. The most common type of DB scheme is a final salary scheme. In a DC scheme, the eventual benefits are not known until retirement, but a specified level of contributions are payable to the scheme by the member. If the scheme is an occupational scheme, a specified level of contributions is payable by the employer and also normally the employee. When the member retires, he or she will receive the total amount of the contributions paid and the investment returns.
Evidence gathering to assess the value of the Cash Equivalent Transfer Value
Before negotiations between the parties or their solicitors regarding pensions can take place, the first step is to obtain the Cash Equivalent Transfer Value (CETV) of each pension fund. The CETV is the value of the pension at the date the request is made and the value that the pension would be given if it was transferred to a new pension scheme. A Pension Inquiry Form (P) should also be completed and sent to all pension providers as soon as possible, as this will provide the parties with further information on the pension scheme.
Evaluation of the pension’s value in divorce proceedings
Once the parties have obtained the CETVs and responses to the Pension Inquiry Form, and once the parties have exchanged this information with one another, the second step is to establish the value of the pension(s), as in many cases the CETV does not provide all of the necessary information and does not reflect the true value of the pension rights. This may be for a number of reasons, from market value adjustment factors or penalties being applied to the CETV being higher, lower or distorted as a result of a member approaching retirement age.
Relying on the CETV is also likely to be difficult where:
- the case involves a valuable public sector pension, such as Armed Forces, Civil Service, NHS, Teachers, Police or Fire-fighter's pension.
- The pension is complex, such as a self-invested pension plan (SIPP) and therefore valuation of company assets or commercial real property is required to value it.
- The parties have several pensions and a determination as to which pensions should be shared to maximise the parties' respective incomes is necessary.
- The non-member spouse has a choice between an internal and an external transfer and there needs to be an assessment of which option is preferable.
- The parties consider pre-marital or post-marital accruals relevant.
- There is a large age gap between the parties.
- One or both of the parties have reached or are close to reaching their lifetime allowance.
Expert advice from a PODE
For the reasons set out above, it is important that the parties seek advice from a solicitor as to whether it is appropriate to obtain a report from a pensions on divorce expert (PODE) and the best way to do this. It may be that the parties appoint a PODE together as a single joint expert or individually. It may also be that one party appoints a PODE behind the scenes without the knowledge of the other party to advise them in the background.
So who gets the pension on divorce?
Finally, we turn to the question at hand, who gets the pension on divorce? This is not a straightforward question. Firstly, there is more than one way to deal with pensions on divorce. It is not a simple ‘wife keeps husband’s pension’ or ‘husband keeps own pension’. The parties could instead seek a pension sharing order or offset arrangement. Secondly, pensions must be considered alongside all the other assets and liabilities between the parties and as part of the overall financial settlement. All the circumstances of the case will be considered.
What is a Pension Sharing Order?
A pension sharing order is an order directing the trustees of one spouse’s pension fund to transfer a percentage of the fund to the other spouse as their own pension fund. It essentially splits one pension into two.
What is an Offset Arrangement?
An offset arrangement is where one spouse’s claim to the other spouse’s pension is offset against another asset or assets. For example, and quite typically, an order is made that the wife keeps the family home or a greater share in it and the husband keeps his pension.
All the circumstances of the case to be considered by a judge
If the parties are in financial remedy proceedings, a judge has a duty to consider all the circumstances of the case and the welfare of any child or children of the family under the age of 18. The Judge must also take into account a range of specific statutory factors, including the capital and income resources available to the parties whether existing or reasonably foreseeable, the parties financial needs, standard of living, ages, length of the marriage, disabilities, contributions made and so forth. Upon considering all of this, different judges can come to a range of possible solutions, all of which would be within the wide band of judicial discretion. It is therefore very difficult to predict at the outset how pensions and the overall assets and liabilities will be divided on divorce. A judge will, of course, have regard to any report produced by a PODE.
If the parties are not in financial remedy proceedings and are instead negotiating a financial settlement through solicitor correspondence or between themselves, they will have more control over how the pensions are dealt with. If the parties manage to reach an agreement, the terms of that agreement will be drawn up into a legally binding document known as a consent order and this will be sent to the court for approval by a judge.
Specialist independent family law advice
Given the complexity of pensions on divorce, it is important that you seek specialist, independent family law advice from a solicitor. The family team at BLM can help.
Disclaimer: This document does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest to customers of BLM. Specialist legal advice should always be sought in any particular case.