August 2008

Splitting Pensions on Divorce

The first thing to say on this subject is that pensions can be split between a divorcing couple, whether the pension is already paying out or not. If the pension is already paying out the value of the pension is called the CEB (cash equivalent of benefit). If the pension is not paying out the value taken by the Lawyers is called the CETV (cash equivalent transfer value).

The CETV relates only to pensionable service as of the date of the request and does not take into account future expectations or contributions.

There are three ways a pension is taken into account in divorce proceedings.

The first is called offsetting, which allows the spouse to keep the pension but giving the other spouse compensation, for example a greater share of another asset.

The second way is known as attachment and Attachment Orders are made by the Court which direct the Pension Trustees to pay a part of the pension to the other spouse, usually on a monthly basis. However, there are disadvantages to an Attachment Order which is similar to ongoing spousal maintenance payments in that it ceases if the recipient of the pension income re-marries and ceases as well upon the member spouse's death. This does not happen in respect of offsetting or Pension Sharing Orders. An Attachment Order does not transfer ownership to the ex-spouse and, as such, has proved unpopular as a method of dealing with pensions in divorce proceedings.

The third way is a Pension Sharing Order, whereby pension benefits are divided between the couple upon divorce and a transfer of ownership is made so that the spouse who is receiving a part of the pension fund from the other spouse actually has it in his or her control. The advantage of this is that it can provide a clean break and a Court, in every single case, has to consider a clean break.

Out of the three methods, offsetting and Pension Sharing Orders are the most common means of dealing with pensions on divorce. An Attachment Order is not often sought by one of the spouses because although it may provide an income to a spouse for life, it does not actually belong to them and can stop all of a sudden upon the pension member’s death and upon the recipient spouse's re-marriage. With offsetting and Pension Sharing Orders the deal is done at the time of divorce and does not vary or change at a later time in either of their lives, whilst an Attachment Order will stop at some time in the future, even if it is just on the member spouse’s death. This may, of course, leave the recipient spouse in financial difficulty.

In considering the appropriate way of dealing with pensions, all the circumstances of the case have to be considered and a view taken as to the best way forward for the individual spouse concerned. Of course, pensions are not the only assets in divorce but are frequently the second most valuable asset in a divorce after the matrimonial home and therefore their consideration is something that is very important within divorce proceedings.

The above only represents a brief and general overview of matters relating to Splitting Pensions on Divorce and accordingly, should you wish to obtain any further advice or assistance in respect of the same, please contact our Family Law Department at our High Wycombe Office.