Pension Provision on Divorce
PUBLISHED: 14:20 14 January 2010 | UPDATED: 14:48 20 February 2013
When a marriage or civil partnership breaks down, the pension funds of a couple can often form a significant part of the assets to be considered in any settlement
Historically, the courts had very little power to make any orders affecting pensions in matrimonial cases. When there were other capital assets the court could make an order 'offsetting' the value of a pension against that of other assets held by the couple, although this did not assist spouses in cases where there were no, or only few other, assets.
In the 1990s the law changed, permitting the courts to make 'pension attachment' orders. These had certain disadvantages and at times could work unfairly. Subsequent legislation changed the legal framework once again, so that today the court has the power, in appropriate cases, to make a 'pension sharing' order for the benefit of a party to a divorce or dissolution of a civil partnership. Such orders have become very popular as a means of providing fairness for both spouses on divorce.
A pension sharing order provides a spouse with a new pension fund in their own name for a specified percentage of their ex-spouse's pension, the amount of which will need to be agreed during the case by the lawyers involved or as decided by the court. Depending on the rules of the pension fund in question, the party receiving the pension money may be able to keep their new pension with the same pension company, or may be able to transfer it to an external pension scheme of their choice. Their new pension fund will then be completely independent to that of their ex-spouse, and will not be affected by their remarriage, or by their ex spouse's death or change in circumstances.
If there are pension rights involved in a case, the parties will each need to obtain a valuation of their respective pensions for divorce purposes. This is known as a Cash Equivalent Transfer Value (CETV), and should be requested whether the spouse is already in receipt of the pension and applies to all pension funds, including the state SERPS/Additional State Pension.
It is sometimes the case that the CETV does not always place a 'fair' value on the pension fund, and in those cases the lawyers acting for the other spouse may need to consider obtaining independent advice from a pension specialist as to the true value of the pension.
Whilst there are some disadvantages to pension sharing orders, in that the pension company may charge high administrative fees to implement the order, and the recipient may have to wait until they are a certain age before drawing on their monthly pension and any lump sum which may be payable, the benefits of such orders are considerable. Indeed, combined with the other orders for financial provision, they can help the parties involved work towards a clean break, enabling them to move forward and achieve financial independence in the future. It is essential that early advice is taken from a specialist family lawyer to ensure that a fair settlement is achieved.