14 September 2018
Couples disregarding pensions during divorce
Age UK has reported that the majority of divorcing couples are disregarding pensions when reaching financial settlements, often to the detriment of the spouse with fewer assets. The report is based upon information from Scottish Widows that 71 per cent of divorcing couples do not discuss pensions as part of the financial settlement, and only 11 per cent of divorce settlements include a pension sharing arrangement.
The report also included statistics from an analysis conducted by the Nuffield Foundation that, of matters which result in court orders, although 80 per cent involved a pension there were pension sharing arrangements in only 14 per cent of those orders. Age UK suggests that may be because pensions are not disclosed as an asset, resulting in them being left out of a settlement entirely, or because of a misconception about the value of a pension in comparison with the realisable assets such as the family home.
The report highlights that pensions not being dealt with on divorce appears to be disproportionately to the detriment of women, principally because historically (and even today) it is more usual for a wife to either give up work entirely or sacrifice career prospects in order to bring up children, which tends to mean that they have either no, or much smaller, pension provision than their spouse.
Sue Andrews, partner and family law specialist at Gerrards Cross solicitors B P Collins, says: “These are alarming and surprising statistics. Pensions must be disclosed along with all assets, resources, income and other material factors, and this is so whether disclosure is voluntary or part of a court process. It should involve the production of documentation about what is called the CE of the pension and the benefits referable to that pension.”
Prior to 2000, the way in which pensions could be dealt with was very limited and unsatisfactory. The spouse with fewer pension rights might have received more of the equity in the family home, or other assets and/or a joint lives maintenance order (but as that stops on remarriage it could mean that the spouse might not ever see a benefit from the pension asset built up during the marriage). At that time, family lawyers looked for creative solutions and welcomed the introduction which meant that pension sharing orders were possible where a divorce petition was filed after 1 December 2000.
We consider pensions in all cases and have considerable experience with them. The occasions where there may be no pension sharing order are, for instance, where each spouse has comparable pensions or if they both agree that the person with no or limited pension provision will receive more capital because they both consider that to be a fair outcome for each of them.
Pensions come in many different forms and a specialist family lawyer will be able to advise how they should be taken into account and will involve an actuary where that is considered appropriate. This would occur if, for example, they are concerned about whether the CE reflects the true value or where the lifetime allowance has to be considered.
The Age UK report explains that those with limited means might not take advice because they cannot afford to do so. Age UK’s suggestion that both spouses should be required to specifically state that they have had full disclosure and that they have specifically considered pensions prior to obtaining decree absolute of divorce, whether that results in a pension sharing order or not, is a sensible one. This would enable the court to know that pensions had been positively considered and, if there was no such declaration, the decree absolute refused because spouses lose their entitlement under the other’s pension upon decree absolute.
Age UK’s report also highlights again the need to ensure that all cohabiting couples are aware that they do not have the same rights as those who are married or in civil partnerships and that, while they may choose not to make a legal commitment, they should think about how assets are owned and consider, for example, an agreement recording their respective financial interests in order to afford them protection should their relationship break down.