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Divorce discourse

Over the last few months I have discussed, in some detail, the principles relating to the division of the value of pension rights in divorce proceedings, with particular emphasis on legislation which came into force for all divorce petitions on or after December 1, 2000.

In this concluding article I summarise the major aspects of claims in respect of pension rights and look closer at the role an IFA can and should play in the proceedings.

Pension claims –

separate from the main divorce settlement?

It is a common misconception that a claim in respect of lost interests in pension rights will be determined separately from the main financial settlement – that is division of matrimonial property and other assets, agreement to pay maintenance etc. This is not true. All negotiation relating to the pension claim must take place at the same time as, and in the context of, all negotiations in respect of all other financial settlements.

For this reason I believe it is imperative that pension advisers refuse to act directly for an individual “divorcing client”. The adviser must liaise closely with the client&#39s legal representative, even where not instructed by that solicitor. Identifying and quantifying the value of lost pension rights is frequently a subjective process in many ways, especially in the context of divorce claims, and it is important that the client&#39s solicitor is involved at a very early stage to determine the basis on which benefits should be valued.

Pension claims in divorce proceedings –

a right or a privilege?

It is particularly important to note that, as I have stressed in previous articles, a spouse has no definitive right to claim against the value of pension rights in divorce proceedings.

The Matrimonial Causes Act 1973 (and the parallel Family Law (Scotland) Act 1985, for Scottish divorce) “merely” directs that the value of pension rights should be taken into account in determining an overall financial settlement, not that an order must be made in respect of those lost rights.

So a case has to be made by the claimant spouse to justify the reasons why he or she feels that an order should be made in respect of the value of the lost pension rights. I noted in earlier articles that the courts have traditionally – especially over the last decade or so – been reluctant to grant an order against the value of lost pension rights unless the claimant can demonstrate that they are certain or likely to need a share of future pension income to maintain a reasonable standard of living.

In other words, the likelihood of a pension claim succeeding has been largely determined on a needs basis rather than on a compensation (for lost rights) basis. See earlier articles in the series for more discussion on this point.

Claiming against the value of lost rights in a pension scheme – how?

Remember that there are now three ways in which a spouse can make a claim in respect of lost rights in the other spouse&#39s pension scheme, as a result of divorce.


Basically, claiming some of the pension scheme member&#39s other assets (for example, remaining equity in the matrimonial home or non-pension assets) in settlement of the pension rights&#39 claim.

Earmarking or attachment orders

Making a claim at the time of divorce but the order does not become payable until the scheme member draws his or her benefits. The pension scheme pays the former spouse directly.


The value of the pension fund is divided at point of divorce or the pension scheme member&#39s spouse is granted a share of the existing pension benefits.

For the financial settlement not to have to come before the court in a contested hearing, the two sides must agree not only on the methodology to be adopted in respect of the pension claim (if any) but they must also agree on the quantum (that is, the amount) of the claim. If they cannot agree on both of these issues then the matter must be referred for the court to decide.

Over the last few weeks, in these articles, it should have become apparent to you that each of these three methods of settling the pension claim has its advantages and disadvantages for the scheme member and the spouse. In almost all adversarial cases it can be noted that whilst the scheme member should be well advised to agree to one of these methods (usually earmarked periodic payment orders), if indeed any claim is surrendered at all, the spouse will almost certainly favour a different method of settlement (set off or pension sharing). Thus we can expect with three options a greater number of contested divorces revolving around the value of the accrued pension rights.

So, where does that leave the financial adviser? In great demand.

A pension adviser should be asked at the start of the negotiations to comment on the nature and the value of each spouse&#39s pension rights on three bases:

a: current lump sum value of the spouse&#39s lost rights (for set-off); b: future expected value of the pension and lump sum (for earmarking); and c: current value of accrued pension and lump sum rights, contrasted with the scheme transfer value, where appropriate (for pension sharing).

This objective valuation should then be considered in conjunction with the more subjective issues around each of these three options such as the effect on the proposed order in the event of the scheme member&#39s death, the spouse&#39s death, the spouse&#39s remarriage (or co-habitation) etc.

If this all sounds complex and a bit vague, well that is because it probably is. However, if an experienced pension adviser might be hard pressed to bring all these issues into focus on a particular case, imagine how perplexing all this is to the average divorce lawyer with little or no understanding of pension schemes.

The demand for a pension

adviser&#39s involvement

Two of the legal profession&#39s leading journalists, authors and practitioners in the field of pensions and divorce – David Salter and David Burrow – have both strongly suggested to their readers (primarily divorce lawyers and barristers) that where the value of pension rights forms a significant part of the matrimonial assets they should seek the assistance of a suitably qualified, knowledgeable (on this issue) and experienced IFA – my apologies to non-IFAs but you will no doubt be aware that solicitors are not permitted to refer clients otherwise than to an IFA.

I am regularly engaged to present talks, seminars and training courses to solicitors, barristers and judges around the country and I can confirm, from discussions in open meeting and more informally after the event, that the demand for suitable IFAs has become absolutely massive over the last couple of months.

Now is the time to develop an entirely new, exciting, and highly rewarding area of business and to look forward to then expanding your involvement with other lawyers in the same practice.

Finally, please remember that where a pension sharing order is made in respect of a funded pension scheme (primarily all those in the private sector and some in the public sector) the spouse will be obliged to effect a transfer to a private pension arrangement. If such a transfer is not effected by the spouse within a prescribed period, typically four months, the scheme is permitted to effect a transfer on the spouse&#39s behalf.

There are two issues here – ensure the spouse receives transfer advice before the prescribed period elapses, and ensure that you are appointed as adviser to pension schemes – from one-man schemes to the biggest final-salary schemes – to take the pension-transfer work off them for pension-sharing orders. They do not want to do it themselves.

So we reach the end of this series of articles on pensions and divorce, though no doubt we will be returning to the topic as things progress. Please give some serious thought to your potential involvement.

From next week, I move on to look at current issues and developments in investment portfolio planning where, amongst other things, we consider how high-risk investments can combine together to give a low-risk, but high-return, portfolio.

Keith Popplewell is managing director of Professional Briefing


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