Pension earmarking in divorce financial settlements

8th March 2015 by

 

Before 1996 the pension was an asset which was seemingly ‘untouchable’ in a divorce financial settlement, but there was concern among family law practitioners and divorce solicitors that women divorcees who, having spent many years looking after children and homes, were left with little or no provision for their later years if their relationship broke down.

Section 166 of the Pension Act 1995 finally reinforced the family law court’s duty to give full consideration to the pension rights of a divorced non-scheme member and on 1 August 1996, pension attachment orders were initiated to deal with pension assets in financial settlement (ancillary relief) proceedings.

Attachment order or ‘earmarking’ – there may be pension problems

Sometimes known as pension ‘earmarking’, a pension attachment order requires the family law court to allocate a portion of a pension fund to the scheme member’s spouse whom they are divorcing. This will then be payable as a lump sum or periodical payments when the member retires.

Ultimately, this means that a pension attachment order cannot be part of a ‘clean break’ financial settlement on divorce because it creates a financial commitment between the divorced parties.

It may also mean that the non-pensioned spouse will be forced to wait for some time before they receive any benefit from the pension assets. This may not be suitable if funds are urgently required following divorce.

Pension attachment orders have also been found to be at risk of manipulation by the scheme-member spouse who, in certain circumstances, could change the value of the asset by altering their contributions to the scheme. And, in some cases, where the age of retirement was not specified by the scheme, members chose not to retire when it would have been expected that the asset would have become payable.

Plus, the court must be speculative when calculating the division of the pension, as there is no way of being able to predict the needs of the parties at the time the asset becomes payable, or what the full value of the pension fund will be.  Although the value is set at the time of the divorce settlement, a variation application can be applied for a variation order.

Healys divorce solicitors can advise on pensions in financial settlements

Dividing a pension in a financial settlement on divorce presents a convoluted legal and mathematical problem and, as such, the advice of an experienced family law solicitor is essential.

If the pension fund is of little value it may be appropriate to consider seeking a pension attachment order, particularly if the fund is likely to increase in value significantly by the retirement date. Similarly, if the non-pensioned spouse is unlikely to be able to amass their own funds for retirement, an attachment order will be appropriate.

However, if the fund represents a significant stand-alone asset, there are several alternative ways the parties to the divorce may see the asset divided – pension sharing and pension offsetting may also be considered.

Here at Healys, our highly skilled team of family law solicitors offers sensitive, yet straightforward advice to ensure our clients receive the most favourable outcome from their divorce financial settlement. We are highly experienced in this complex area of family law.

Based in offices in London and Brighton, we advise clients all over the UK and from further afield.

For more information on the service we provide, please contact Catherine Taylor in Brighton on 01273 669 124 or email catherine.taylor@healys.com  For London enquiries please contact Jane Sanders on 020 7822 4107 or email jane.sanders@healys.com