Pension sharing in divorce
How pensions are shared in divorce was changed by the Welfare Reform and Pensions Act 1999. It gave the divorce courts more powers to deal with pensions in the proceedings to settle the financial issues arising from the marriage and, in particular, to enable them to overcome the problems which have been mentioned earlier in relation to off setting a pension against other assets and also in relation to “ear marking” orders.
The principle is quite simple. The Welfare Reform and Pensions Act enables pensions to be split for the first time. Basically, if the request is made on the divorce petition or in the application to settle the financial issues the courts can order a pension provider to split a pension so that both husband and wife have separate, independent pensions. The husband’s pension fund (typically it is the husband although that does not have to be the case) is split so that there are now two separate pensions – one for the wife and one for the husband. There are several points to notice about this:-
(1) There is no requirement to split equally. It is important to stress this in divorce advice for men because typically it is the man’s pension which is being split. The division is done on the basis of percentages. The percentage which will be transferred to a pension for the wife will depend on the circumstances of the case. If, for instance, the wife has already received the bulk of the other assets of the marriage it would probably be unfair for her also to receive 50% of the husband’s pension. A lesser percentage might be appropriate although it has to be stressed that the exact percentage depends upon individual circumstances which vary greatly.
(2) The wife no longer has to wait until her (ex) husband takes his pension benefits in order to take her pension benefits (as is the case under “ear marking”). Under pension sharing she has her own independent pension provision and when she chooses to take those benefits will depend on her choice. She also does not lose this independent pension if her husband happens to die before reaching pensionable age.
(3) The pension is divided as of a given date. Say, for instance, the pension trustees inform the court that the husband’s pension fund has a certain value at a given date. The pension is split using that date and these figures. The relevant percentage of the fund’s value as of that date is transferred to the wife but she does not benefit from any further contributions paid into the pension fund by the husband from that date onwards. This enables the husband to rebuild his pension provision if he wishes.
These are the main principles of the Welfare Reform and Pension Act 1999. Since the value of pensions is often the second largest capital asset of the marriage after the former matrimonial home it is almost always something which looms large in a divorce settlement. And, as has been seen, there are different ways of dealing with it depending on what the husband and wife want and on what is appropriate in any given case. These pages attempt to summarise the pension position but in practice individual circumstances can make it rather more complicated.
To find out more about issues in sharing pensions upon divorce please continue.