Pensions on Divorce – Where do I stand? Recent Case Provides Further Guidance
When a couple are divorcing, a pension often forms an important part of their financial assets. Reported cases analysing how pensions should be dealt with, are very infrequent but a recent case decided on the 24th February 2020 by the Swindon Family Court has provided some helpful guidance. The case (WvH (Divorce and Financial Remedies)) was one revolving around needs, meaning that the assets available to the couple were only sufficient to meet their needs, rather than exceeding what was required in this regard.
The wife was 50 years old and the husband was in his late forties. It was a relatively long marriage and there were 3 children.
The capital assets of the marriage were the family home, which was of modest value. Both parties had some debts and both parties had pensions, with the husband’s being worth more than the wife’s. This is a common scenario.
The Court considered 3 important issues when looking at the pension position.
Firstly, when the Court is looking at dividing pensions to create equality, should it look at achieving equality based on the capital values of the pensions, or alternatively, should the Court be looking at equality of income from the pensions? The Court made it clear that there is no “one size fits all” answer to this question. The point was made that in many cases the capital values of the pensions will provide an appropriate base upon which to calculate how they are to be divided. This is particularly so when the value of the pensions is small and where the parties themselves are relatively young. In other words, there are many cases where simply dividing the capital value of the pensions will result in there being a fair outcome. However this may be less so where the parties are closer to retirement and as such a division of the pensions to result in an equality of income could well be the better approach.
Secondly, the Court had to consider whether it was fair to exclude from its calculation part of a spouse’s pension that had been earned before the couple married, or cohabited. In this case the husband argued that part of his pension accrued prior to the marriage and that this should be excluded from any calculations made by the Court when considering how the pension income would be divided. The Judge did not agree with this view. He felt that this would result in unfairness.
Thirdly, a further question for the Court was whether or not it should treat a pension separately, or should look to offset the division of pensions against the apportionment of other assets. The point was made that in many cases a wife and it is most often a wife, rather than the husband, will seek to offset her claim against the husband’s pension, or pensions, against say the husband’s claims for his share of the family home. The traditional view has been that a pension should be dealt with separately from other assets and that it needs to be viewed as a different type of marital asset. The Judge expressed his concern that many couples chose to “blur the differences between the categories and engage, to a greater or lesser extent, in an offsetting exercise”. He pointed out that it needed to be borne in mind that mixing categories of assets ran the risk of creating unfairness. It could well be the case that it would be unfair for one party to have the benefit of assets, the value of which could not be realised, whilst the other party had assets, the value of which could be realised. In this case the husband was to receive his half share of the family home, but it was deferred to enable the children to have a home, along with the wife.
Case law is very useful in assisting practitioners in determining how to approach financial issues arising from a divorce and the case of WvH has clearly provided helpful guidance.
Should you wish to have any advice about a family law matter, then please do not hesitate to contact Judith Fitzpatrick. She can be emailed on firstname.lastname@example.org or telephone 01274 723858.