Pension Sharing Orders on Divorce

Posted on: 21/04/2022

Category: For you

How to divide pensions on divorce has long been a thorny issue. Given the amount of time now expended on the question it is hard to think that as recently as the mid-80’s next to no thought was given to pensions assets and at best there might have been a very broad brush offset of more property equity for one party in exchange for pension retention by the other.

Things began to change in the 90’s firstly with pension attachment – in effect a form of maintenance - and then in the late 90’s came the arrival of “pension sharing” as a result of which a pension fund can be split and allocated between the parties. It took some years for the courts to cotton on to how to use the powers but in recent years the approach to pensions has become much more detailed. Pensions can now be one of the biggest if not the biggest asset to be shared on divorce. The importance of the issue is raised for solicitors in view of the fact that whether the solicitor is top notch and experienced or a newbie fresh out of law school many professional indemnity insurers now require an actuarial report to be obtained if the pensions are worth £100,000 or more.

Pensions often cause emotion to run because the entitlement to funds can be built up for many years pre-marriage. Are such funds marital or non-marital assets? Can a pre-marriage pension be “ring fenced”? For many years courts have been quite willing to reserve on one side the pre-marriage element of a fund. Nowadays however these are complex issues.

If you settle a pension claim for even £10,000 less than it should be how long will it take the average person to build the resource back up out of spare cash? Probably years. Clearly there is risk and this is an area for experienced quality advice.

In the case of W v H in 2020 the parties had various assets but the Husband’s defined benefit pension was by far the biggest. The court used a pension sharing order in a way designed to equalise the provision but importantly to meet both income need in retirement for both parties and to provide the husband with a lump sum to enable him to buy a property. The court aimed to treat both parties equally in relation to income and housing need. In doing so it took into account the whole of the fund to include that portion built up by the Husband before the marriage.

This has led some to suggest that the courts should now always take into account the whole of a pension fund to include the pre-marital portion. We tend more to the view that the case is authority for that potential approach in order to meet need but if need can be met in other ways or if needs are surpassed so that sharing is the more obvious principle it is still perfectly realistic to argue to the court that the pre-marital portion of a pension may be hived off and reserved to one party. The approach will depend on your case. This is not an area for DIY law.

Another approach may of course be for the parties to the marriage to consider a pre-nup – but that’s a different article for a different day!!