In most cases apart from the value of the matrimonial home, pensions are the most valuable asset of a marriage. When marriages break down, it is often the case that one party will ask how they can stop their ex from claiming against their pension.
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The reality is that they cannot stop claims from being made. When marriages breakdown and financial settlements are considered full and frank financial disclosure has to be exchanged. This must set out all the assets of the marriage from houses, to cars, to savings and to pensions. The value of the pension must be obtained by its cash equivalent value (C.E.V) and in some cases a more in depth valuation may be needed. This is certainly true of pensions associated with the armed forces, police and final salary schemes.
People have strong views that the pension is theirs and theirs alone because the contributions have come from their wages. This is not the case. The pension is just as much an asset of the marriage as anything else. The fact that the contributions have been made form one income makes no difference. In fact, had the contributions not been made, that person would have had more disposable income each month to spend within the marriage.
It is not necessarily the case that an ex will be entitled to 50% of a pension. Although equality is often the starting point when looking at financial settlements, there may well be reason to depart from equality depending on factors such as children, age, health, contribution etc. The first consideration is always the welfare of any children of the family under the age of 18. The following factors will also be looked at:
- The income, earning capacity, property and other financial resources which each spouse has or is likely to have in the foreseeable future including, in the case of earning capacity, any increase in that capacity which it would be, in the opinion of the Court, reasonable for a person to take steps to acquire.
- The financial needs, obligations and responsibilities which each spouse has or is likely to have in the foreseeable future.
- The standard of living enjoyed by the family.
- The ages of each spouse and the duration of the marriage.
- Any physical or mental disability of each party.
- Contributions which each party has made or is likely to make in the foreseeable future for the family, including any contribution by looking after the home or caring for the family.
- The conduct of each party, only if that conduct is such that it would be inequitable to disregard.
- The value to each party of any benefit which one party because of the divorce will lose the chance of acquiring (usually in relation to pensions).
Sometimes allowances can be made if a large proportion of the pension was built up outside of the marriage. For example if the marriage and relationship was only short in duration, perhaps 2 years but the pension is extremely valuable because it has 30 years of contributions, then it may be appropriate to only take the contributions made during the marriage and period of cohabitation into account. On the other hand if the marriage is long, perhaps 20 years, it is less likely that the contributions will be limited to those made within the marriage.
The main orders that can be made in relation to pensions are pension sharing orders, pension attachment orders and orders which offset an interest.
Pension Sharing Orders
The person with the larger pension has a pension sharing order made against the scheme. This allows a percentage of the pension to be removed and put into a fund for the other party. Sometimes the shares take place within the same scheme. If they do not and the person receiving the benefit of the pension sharing order wants to transfer their share out of the existing scheme, then they can pay it into a scheme of their choosing. They normally need good independent financial advice at this stage.
Once the pension has been shared, the two schemes work independently. It is then up to each party to continue to manage their respective pension fund to make sure that it produces the best results for them on retirement.
The amount of the percentage will depend on the factors set out above and will also vary depending on the level of pension the receiving party already has. It is not always the case that an ex will be entitled to 50% and orders of this nature can only be considered if the pension fund is of a significant size to warrant an interest especially as many schemes charge for implementation.
These orders are made when the person receiving the benefit of the pension does not want to wait until retirement and is more interested in receiving an extra payment from the other assets of the marriage. It can only be done in circumstances where the assets available are worth enough to provide the extra lump sum needed.
The pension value has to be established and so does the value of the pension provision of the receiving party. Once these are known and the difference between them established, what is called a capital value can be calculated. This is normally calculated by an actuary. This capital value is the figure that will be used as the offset amount. So if the figure is £50,000 and there is an additional £50,000 available from the other matrimonial assets over and above the receiving persons share from those assets, then the pension interest can be offset.
The person with the pension keeps it in tact and the person receiving the interest in the pension receives it in the form of an additional capital payment.
Pension attachment orders are not made all that often. They work by securing a percentage of the member’s pension for the benefit of the receiving party once the pension is in payment. Many parts of the pension can be subject to attachment including the lump sum, death in service payment and the pension itself.
The orders act as a way to secure a payment from one person to the other. They are however dependant on the member living to retirement and receiving the pension and they do not have longevity for example they change with factors such as the scheme member re-marrying. There are many limitations and complicating factors to theses types of orders which is why they are not made very often.
Pensions are fast becoming one of the more complex areas involved in financial settlements. It is vital that proper legal advice is sought at the outset.
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