A pension is a future asset of a party as well as a future source of income, and as such will be taken into account in a financial settlement. It is a particularly complex area of any financial settlement on divorce or separation, and needs extremely careful consideration before any final agreement is made. In almost every case it will be wise to instruct a solicitor to help you.
There are two types of Order that a Court can make in relation to pensions. These are Pension Sharing Orders and Attachment Orders. There cannot be a pension sharing order and an attachment order for the same pension.
This is where the Court can make an order for one party to share part of their pension with the other. The order also specifies what percentage of the value is to be transferred. Once an Order is made, the beneficiary will have an absolute entitlement to the pension fund and is not affected by any subsequent bankruptcy of the pension holder. The basic state pension cannot be the subject of a pension sharing order. Pension sharing orders are available in respect of occupational, personal, state earnings related pension schemes and second state pension schemes.
A pension sharing order is only available when a petition for divorce or nullity, but not judicial separation, has been filed on or after 1st December 2000. If the petition is earlier than that date, pension sharing will only be available where Decree Absolute has not been granted and it is possible to rescind the Decree Nisi with the consent of the other party to the marriage. After the Decree Nisi is rescinded, it will be possible to begin new proceedings when pension sharing will be an available option.
Pension sharing orders only take effect after the Decree Absolute has been granted.
Once the Decree Absolute has been granted, the pension sharing order cannot be varied. Variation of a pension sharing order can only take place prior to the granting of Decree Absolute.
An alternative approach is to ask the court to make an attachment order. The effect of such an order is to require those in charge of the pension to pay amounts, expressed in percentage terms, to the person named in the order, who is not the holder of the pension.
Attachment orders do not have the protection of pension sharing orders and are particularly vulnerable to claims of bankruptcy, in which case the whole of the pension fund would vest in the trustee in bankruptcy, even when there is an attachment order in place. Unlike pension sharing orders, an application can be made to vary attachment orders at any time.
There are three kinds of attachment orders:
(1) Attachment for income purposes
Such an order provides for periodical payments to one party up to the death of either party.
(2) Attachment for a capital sum
The effect of this order is to provide a lump sum from the pension. This lump sum is paid when the pension is taken, and this is obviously uncertain.
(3) Attachment of death in service benefits
A pension scheme will usually specify who should receive the appropriate benefits of the scheme should the holder die before taking the pension. An attachment of death in service benefits order can force the holder of the pension to specify that the other party should receive such benefits.
The downside to attachment orders is that the person who has the benefit of the pension can decide when the payments should be made. As such, the spouse may be kept waiting for a long time before receiving the benefits. Furthermore, if the spouse remarries, any provision regarding income payments will end. As such, the mainstream view is that pension sharing is a better option than attachment.
The overriding objective of the Court is to come up with a solution that is as fair as possible to all parties. The Court will take into account a number of factors when deciding on the most appropriate Order to make, these include:
What is best for the family:
For instance, where housing provision is the key consideration, it may be best for the spouse to seek a larger share of the liquid capital available.
Death benefits payable under the relevant scheme:
In cases where a spouse or dependant will continue to receive maintenance for the foreseeable future, it is essential to ensure that appropriate arrangements have been made in the event of the unforeseen death of the payer.
The age of the parties concerned:
Where parties are both young, the Court might conclude that there is sufficient time for both to make subsequent pension provision for themselves and therefore refrain from making an order.
The value of the fund:
A pension scheme’s Cash Equivalent Transfer Value or CETV is used by the Court in pension calculations. This is the amount of the fund needed to provide the pension in the future. However, this does not always produce an accurate valuation of the benefits payable. As such, it is sometimes necessary to investigate this in more detail to ensure that a fair award is made.
Ultimately, both parties should think very carefully about seeking an order if the amounts involved are very small. Litigation can be expensive, and there is little value in taking this approach if the pension funds at stake are not significant.
Divorce is a difficult time for those involved. Our qualified and experienced family team will seek to advise you throughout the divorce process, as well as offering you information about alternative resolution options. We can also help you with the protection and distribution of jointly owned assets, both property and financial, and with any issues relating to your children.
For information of users: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.