Point of Law - Pensions

This article was written by Peter Watson-Lee of Williams Thompson for a national magazine (Vive) when pension sharing was first introduced in 2000. Pension sharing is now a major aspect of many divorces and the article (which has been updated where necessary) is still helpful in explaining what is involved.

The law affecting pensions changed on 1st December 2000, bringing with it huge implications for people going through divorce. Peter Watson-Lee guides us through the maze, as it affects England and Wales.

Peter Watson-Lee is a past Chairman of the Law Society’s Family Law Committee and a practising solicitor with Messrs Williams Thompson, a specialist family law practice in Christchurch, Dorset.

So what’s all this about pensions?

When you go through divorce, it is necessary to divide the finances. Sometimes one of you, most often the husband, will have a healthy pension fund – indeed it may be one of the biggest assets.

So am I entitled to a share of my spouse’s pension?

Until a few years ago, the answer would have been no. The court did not have the power to give a wife a share of her husband’s pension (or for that matter the husband a share of the wife’s). Even if a couple agreed between themselves to share a pension they had no ability to do so. All the court could do was consider giving the wife a larger share of the matrimonial home or a capital sum in return for the husband keeping his pension. However, this was never very satisfactory, especially if the pension was the only asset.

So what happened a few years ago?

Since 1996, the courts have had the power to make ‘earmarking’ orders. This means that the court could order the husband’s pension company to pay a share of any income or lump sum from the pension to the wife. However, this has a lot of problems. In particular, the pension still remains the husband’s. If he died, the pension died with him and the wife could end up with nothing. Also, if, for example, the wife remarried, she lost her ‘earmarking’ rights.

By the way, although I talk about wives making the claims, the law is not biased – husbands are just as entitled to make claims against their wife’s pension funds.

So what is happening now?

From 1st December 2000, the courts have had the power to order pension sharing (sometimes called ‘pension splitting’). This means that they can order a percentage of the husband’s pension fund to be transferred to his wife to be held by her in her own right. She will then have a pension of her own, either with the husband’s pension company or transferred to another pension company of her own choice. Once this is done, even if the husband was to die before drawing his pension, the wife would still have the pension benefits under her own separate pension fund. As it is hers outright, she will still retain if even if she remarries.

So does this apply to everyone who has been divorced?

No. The law is not retrospective. It only applies in cases where divorce petitions are issued after 1st December 2000, so if you were divorced before then, I am afraid it will not apply.

Ok, so if I issue a divorce petition now, will I automatically be entitled to half my spouse’s pension?

No. In sharing out the assets, a court takes into account all the various factors such as the length of the marriage, the ages of the parties and the needs and resources available. The pension fund is seen as just one of the assets to be taken into account. It may still be, for example, that if the wife keeps the house in some cases it will be fair for her husband to keep his pension fund free from any claim. Every case will need to be looked at separately and pension sharing will only take place when appropriate.

So when is pension sharing likely to apply?

As time goes by, judges will decide how they are going to apply these new rules and it will become clearer what sort of orders we can expect. On previous cases it is clear, for example, that if the parties are relatively young (i.e. in their 20s or 30s) and if the marriage is short, the court is not going to take much note of pension funds which, after all, are unlikely to become payable for many years. On the other hand, in long marriages where the couples are reaching retirement, pensions are going to be extremely relevant and pension sharing orders are going to be very important.

If my husband is already drawing his pension can I still make a claim?

Yes, it is possible to share a pension already in payment.

Can I make a claim even if we are not married?

No. Pension sharing is only available to married couples on divorce.

If my husband and I agree to share a pension, do we still need to see a solicitor?

The answer will have to be yes. To be effective, you must have the agreement incorporated into a Court Order. The pension companies will not put a pension share into effect unless there is a specific court order.

How can I find out the value of my husband’s pension?

In any divorce proceedings, both parties have an obligation to give a full disclosure of their assets. Both you and your spouse (or your solicitors if you have them) will need to write to your pension companies and obtain full details of your pensions. Pensions are notoriously difficult to value. They consist of a whole series of benefits such as a death benefit if the person dies, a lump sum payment on retirement, pension income after retirement and possibly a widow’s pension if the pensioner dies before his wife. Unless the sums are small, you really do need to understand what’s involved before agreeing any settlement.

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