What happens in divorce proceedings when both the husband and the wife are receiving pensions?
How is this situation treated by the Courts and how are adjustments made when one divorcing spouse is already in receipt of a much larger pension payment than the other?
Guidance has recently been given in the case of Martin-Dye in which the husband and wife had been married for 15 years. They had substantial assets – the wife owned a farm which was used as a livery business and had been derived from her previous marriage. The husband owned a property in his own name, a business and various cars. They jointly held a property-holding company, but both of them were receiving their pensions – with the husband drawing £33,480 a year and the wife £5,880 a year.
Having established that the properties and tangible assets must be treated separately to the pension – given that they are income streams and not capital – the Court then went on to consider how it would deal with the pensions. A pension in payment cannot be sold for cash or offered as security for borrowing. There is then an obvious difference to a market value associated with assets such as a freehold property or a car. The Court has defined that the starting point for a pension in payment is to look at the cash equivalent benefits for each scheme. It is preferable that both the husband and wife’s representatives agree to instruct a suitable expert for a bespoke valuation of each pension scheme, but in so doing, for the expert to analyse the extent to which adjustment of the larger pension fund should be carried out with the net result of achieving equality of pension income. This then is effected by the making of a Pension Sharing Order which will require a percentage of the larger pension fund to be credited to the other relevant spouse, in this case, the wife.
It is important that both the member and ex-spouse seek their own specialist independent financial advice prior to a Pension Sharing Order being agreed so that they fully understand the options available to them and any possible implications of each course of action.
The scheme administrator of the larger pension might offer the option of an internal pension share credit (or shadow membership) for the ex-spouse. In this case the pension benefits might not be payable to the ex-spouse on exactly the same basis as they are to the member and there may be other restrictions that are not immediately apparent.
An external credit might be the only option. In this case it is important that the ex-spouse seeks professional advice to ensure that their credit is transferred to the most suitable type of pension plan depending on their current circumstances, existing retirement provision (if any), future plans and objectives, and attitude to investment risk. There are many potential pitfalls for the unwary and not receiving appropriate advice could result in unexpected restrictions on how and when pension benefits can be taken in the future. Therefore a full understanding of the potential advantages and disadvantages of the options available is vital.