I am currently separated from my husband, and I would prefer that the divorce proceedsas soon as possible. However, my solicitor has insisted that we delay proceedings until December this year because of his pension scheme. Why is this?
In many marriages, the pension scheme can be the most valuable asset (marital home excepted). So, when a marriage breaks down, one of the main problems in resolving the financial side of the split is organising an equitable distribution of pension scheme assets.
This has always presen-ted difficulties, primarily because of the rigidity of Inl-and Revenue regulations which have prevented pension assets built up in res-pect of one party from being redistributed to another.
In cases where a clean break is being sought, the inability to tap pension assets can lead to a position where the party with a pension ends up ceding virtually all his or her liquid assets to the party without a pension to counter-balance the non-transferability of the pension assets.
Further, because in most cases the liquid assets are not sufficiently large, the clean break cannot be achieved and both parties end up with their financial affairs intertwined for many years after the divorce – a situation which is clearly unsettling for both sides.
Until now, the tools available to divorce lawyers for sharing pension assets have been limited and clumsy.
Before 1996, any arrangements involving the pension scheme depended, to a very large degree, upon the co-operation of the party with the pension scheme.
For example, if that party was aged over 50, one possible approach was to draw pension benefits early and then pass across part or all of the tax-free lump sum.
However, the court could not force this and, in any event, since this would have a potentially severe effect upon the resulting pension it was very unlikely that one party would agree to do this without coercion.
After 1996, the concept of earmarking was introduced, whereby the court could order that part of a pension is paid direct to the other party.
This was a definite improvement but with major flaws.
The earmarked pension would normally cease on the death of the member of that scheme, leaving the other party in financial difficulty if he/she survived the member.
Further, the member would have control over when to start the pension.
A particularly nasty strategy was then available to the member – delay starting the pension until as late as possible, thus denying income to his or her former spouse.
For these reasons, and also because of the complexity of structuring an earmarking arrangement, very few earmarking orders were ever made.
Before earmarking became law, a resourceful combination of professionals per- suaded a court that, in specific cases, there was scope for it to order part of one party's pension assets to be transferred to another party without breaching Inland Revenue regulations.
This was the Brooks ruling, and the order was used as a template for a number of similar cases.
Unfortunately, this was only ever a realistic approach for very small company pension schemes and therefore unavailable for the vast majority of divorcing couples.
However, it did illustrate how pension assets could be dealt with in a simpler and more effective manner ina divorce.
It seems that the implications of the Brooks ruling were taken to heart by the Government as we will very soon have the concept ofpension sharing.
Briefly, this means that the court can order that part of one party's pension arrangement can be reallocated to the other party. This new pension entitlement can then either be a: left within the pension arrangement, to be drawn when required (subject to the usual pension scheme restrictions) but independent of the other party's benefits, or b: transferred out to another pension scheme – perhaps a personal scheme.
This is a clean break of pension assets in the truest sense in that each party's pension decisions from that point onwards can be made independently. Clearly, this is a radical and most welcome development in divorce management.
The ability to share pensions in this way is limited to divorces where proceedings commence after December 1, 2000. This is why your solicitors are recommending that you wait and there are very good reasons for following their advice.