What happens to my pension on divorce?

Pension pots are often the single largest asset after the family home for divorcing couples. Research by the Pension Policy Institute highlights concerns that divorcing women are often retiring with pension funds a quarter of the size of divorcing men and that confusion over how a pension would be split or uncertainty over how much is available can often lead people to not consider the pension as a negotiable asset in the divorce.

This year there have been three recently decided cases concerning the treatment of pensions on divorce which provide some clarity as to how the court will deal with pensions.  These decisions reflect the Pensions Advisory Group’s guidance to the treatment of pensions on divorce which was published in July 2019.  The issues which are commonly disputed are:

• Whether the division of pensions should be on an income or capital basis.
• How to deal with pension accrued before marriage and/or during a long period of separation.
• Whether to offset capital against pension sharing.

The cases were:

W v H (divorce financial remedies) [2020] EWFC B10, HHJ Hess considered a case in which the husband’s defined benefit pension was worth £2.1m, yet the equity in the family home was worth only approximately £240,000. Both parties had significant debts. Hess treated the matter as a needs case.

KM v CV [2020] EWFC B22 HHJ.  This case, heard by HHJ Robinson concerned a police pension and a long period of separation, the parties had separated in 2011.  The wife (the pension holder) argued that the pension should be valued as at the date of separation, rather than the date of trial.

RH v SV [2020] EWFC B23 was also a judgment of HHJ Robinson. Similarly, with the other two cases, the pension was the largest asset: the husband’s pension had a cash equivalent value (CEV) of nearly £1.5m.

Dividing pensions on an income or capital basis

In W v H, Hess observed that there is no ‘one size fits all’ as to the division of pensions.  If the value of the pension is relatively small and the parties are young, a division on capital value basis would be appropriate.  A capital value split may not however, always achieve a fair solution when pension assets have a larger value but needs issues arise.  This is particularly where one party is part of a defined benefit scheme and where the parties are closer to retirement.

Furthermore, if a husband or wife is arguing that the case is one where their needs are a significant factor, a division to achieve equality of income is likely to be the correct approach.  This approach often requires expert evidence from a PODE (pensions on divorce expert).

Pension accrued before marriage and/or during a long period of separation

In all of the three recent decisions, the treatment of pre-acquired and post-acquired pensions was largely considered within the context of needs.

When dealing with a needs case, the court can have resort to any assets whenever they were acquired to ensure that the parties’ needs are appropriately met.   However, in a sharing case, (ie. Where basic needs are already met) a pension being treated as non-matrimonial property is not automatic and can be treated as a live issue. 

It will often be fair to aim to provide the parties with similar incomes in retirement, but equality may not always be a fair result and other factors such as contributions, health, age and length of marriage have to be weighted in the final decision.  This could result in what is known as non-matrimonial acquired pension asset whether pre-marriage or post-separation falling within the assets to be shared.

In KM v CV, HHJ Robinson held that the relevant date for assessing the value of the pension was clearly the date of the trial and not 2011.  Defined benefit pensions will accrue greater benefits in later years as the individual’s income increases.  A calculation therefore on years contributed pre or post marriage does not always work.

Whether to offset capital against pension sharing.

There are a variety of ways a pension can be divided when the assets in a divorce are being considered.  The two main approaches are:

• Pension sharing order
• Pension offsetting

A pension sharing order specifies the percentage share of any given pension pot to be awarded to the ex-spouse and can only be ordered by a family court.  The managers of the pension pot to be shared will pay the amount produced by the percentage split into a pension fund of the ex-spouse which the ex-spouse will then own and manage as their own.

Pension offsetting is when there is a comparison of the value of the pension funds with the other assets of the family to reach an overall fair division.  The pension fund will stay with the owner but the other spouse will receive a greater share of the other assets.

In RH v SV HHJ Robinson noted that there was nothing inherently wrong with aggregating the value of capital and pension assets for the purpose of comparison, provided that it is recognised that is it not a comparison of equal values.  Choosing to forego a share of a pension for more out of other capital assets may not be the right solution.

Finally…

Pensions often form significant assets and should never be ignored during divorce proceedings. 

While a pension may not produce any benefits for some years, its value could be considerable especially in circumstances where an ex-partner has a high income and has invested a lot into their pension or they may have a final salary pension.  The role of the family courts is to ensure that both parties separate with the means to make their own living following the divorce, especially when they approach retirement age.

Why choose Moore & Tibbits?

If you have concerns regarding your pension on divorce, you want peace of mind your chosen divorce lawyer has the relevant expertise to get the best possible results for you.  Carline Gayle-Buckle of Moore & Tibbits previously trained as an economist and has particular expertise in complex financial matters including disputes relating to business assets and pensions.  She has a wealth of experience in family law and is well known for her strategic planning to get the best possible results for her clients.

If you are thinking about a divorce or separation and would like to discuss your situation, call Carline on 01926 354704 for a free initial telephone consultation.