In many cases where I am instructed by a party following a breakdown of their marriage, it becomes clear that one of the most valuable assets is the pension scheme.
The court now has power to order a split of the pension in order to achieve fairness between the divorcing couple. Depending upon when the pension was acquired, it may be that the overall pension “pot” is split equally based on fund value, or equally based on pension benefits payable. Alternatively a split may be something other than an equal sharing in circumstances where one party contributed to the pension prior to the marriage – and where it is appropriate to ring-fence that pre-marital contribution.
However, in my experience, many lawyers advising the spouse (often the wife) who does not have the benefit of significant pension provision take an all too simple approach. They often propose on her behalf an equal split without any investigation as to what this in fact means to their client in practice. Depending upon the nature of the scheme, different rules will apply. A straightforward money purchase scheme may well be fairly readily accessible upon the parties attaining the age of 55 years. Following the recent “pensions freedom” legislation, such schemes may be available to be drawn down in cash, subject to the payment of tax at the marginal rate on that part of the pension that cannot be drawn down tax free.
However, there are a number of fairly complex pension schemes such as those relating to the armed forces, medical professions, the civil service etc. where considerable care needs to be taken to ensure that the spouse who is entitled to receive a fair share of the pension actually receives what is intended. In many cases, legal advisors approach settlement discussions, which involve a pension split without any clear idea as to what will actually happen when the pension sharing order is made and implemented. I frequently see a lack of understanding with regard to the date upon which the pension benefits can be taken. Is there an option to take a lump sum? Are there any cost of living increases payable under the terms of the pension? What will the actual income stream be when the pension is accessed? Will there be penalties for drawing down the pension early and if so, what is the extent of these penalties? What if a spouse or former spouse dies before the pension sharing order is implemented?
Further, the relationship between the payment of spousal maintenance and the timing for the drawing down of the pension benefits under the terms of a pension sharing order is often crucial.
In cases involving a family farm, it may well be that the payment of the lion’s share – or even all of the pension – to the outgoing spouse may be appropriate by way of an offset against a claim in other, less liquid assets such as farmland, working capital etc.
How can anyone possibly agree to a settlement without a full understanding of what it means in terms of actual cash?
In many cases a pension sharing order is critical to the future security of a couple on their divorce. Full, comprehensive and clear advice is required with regard to income and capital for a divorcing couple in order to enable them to look to their futures, and move forward with their independent lives.
This is often a complex area of law and advice from a solicitor who is experienced in dealing with these issues is crucial.
This blog first appeared as Margaret’s monthly column in the Yorkshire Post’s Country Week supplement.
Margaret has significant expertise in farming and landowning cases, you can contact her on 01748 900 888 or visit www.silkfamilylaw.co.uk. You can follow Silk Family Law on Twitter @Silkfamilylaw