Pension Sharing : Guidance from the Courts

With many couples separating after having married either later in life or for a second time, the issue of how pensions should be shared and whether pensions should be shared so as to exclude pension accrued prior to that marriage has become a major issue requiring advice from Family Lawyers.

Fortunately in the case of W v H (Divorce financial remedies) [2020] EWFC B10), the Courts have given very welcome guidance as to the approach that should be taken when sharing pensions.

In that particular case the wife was aged 50 and the husband 48. They had lived together since 1999, married in 2005 before then separating in 2016.

The main assets of the marriage were the pensions.

The husband had a large Defined Benefit scheme (schemes which pay out a secure income which increases each year, such as Final Salary or Government Pension Scheme) with a Cash Equivalent  of over £2 million and a small Defined Contribution scheme ( a scheme in which the scheme member builds up a fund which can then be used to buy a retirement income) and the wife had a modest Defined Contribution and Defined Benefit scheme.

The main argument between the parties was

  • Should the pensions be shared to achieve equality of capital value or equality of retirement income?
  • Should the courts exclude that part of the pension that was earned by the husband prior to marriage/cohabitation?

In this case the Court decided to make a pension sharing order which would seek to equalise retirement income.

Furthermore the pension sharing applied to the entirety of the pension rights and did not exclude those accrued by the husband prior to the marriage.

The court stressed that although there is no “one size fits all” solution and that there are situations where equalising capital values may be appropriate for example where pension assets are relatively small, where parties are relatively young, or where pension assets are relatively straightforward, there will also be situations where pension sharing to equalise income would be considered appropriate. These would be cases where:

  • The pensions are medium or large and the parties needs on retirement are required to be met.
  • Where one or more of the pensions is a defined benefit scheme
  • The parties are no longer young and retirement is on the horizon.

The Judge made particular reference to the Report of the Pension Advisory Group (PAG Report) and quoted from the report itself: ‘Given that the object of the pension fund is usually to provide income in retirement, it will often be fair … to implement a pension share that provides equal incomes from that pension asset … Equality of income will often be a fair result … A division that pays little or no attention to income-yield may have the effect of reducing the standard of living of the less well-off party significantly.’

The Judge also rejected the husband’s argument that pension accrued by the husband prior to the marriage should be excluded as this would have resulted in the wife being unable to meet her needs.  The Judge again referred to the PAG report which reported that the vast majority of cases will be needs based and that in needs cases the Court can consider sharing any assets irrespective of when they were acquired in order to meet the parties’ respective  needs.

Pensions are complex assets but The Black Country Collaborative Group are fortunate to have Specialist Family Lawyers and Independent Financial Advisers who will be able to guide separating couples every step of the way to help achieve a fair resolution through the Collaborative Process.

Separating without Blame

The current law provides that the ground for seeking a divorce is irretrievable breakdown of the marriage based on one of five facts being adultery, unreasonable behaviour, two years desertion, two years separation with consent and five years separation.

Resolution, the national body of Family Lawyers and Practitioners, has long campaigned for reform by introducing no fault divorce in order to reduce conflict and support separating couples to resolve matters amicably.

Nigel Shepherd, the Chair of Resolution reports that Resolution’s campaign has led to a high level of media coverage and public declarations of support for no fault divorce.

A report in “The Economist” agreed that it was time to introduce no-fault divorces and went on to say:

“sorting out the division of assets and arranging for the…future care of children are always the hardest aspects of ending any marriage. Eliminating questions of who is to blame for the split would allow those involved to focus on dealing with these”.

This campaign for reform is supported by the public with a YouGov poll published in March 2017 reporting that 69% of the public want to remove blame.

We at the Black Country Collaborative Group believe that the introduction of no fault divorce will help separating couples to resolve issues relating to their children or division of assets in a constructive way without divisive arguments about who is to blame for the separation.

Putting Children First

 

chidren first

New polling carried out on behalf of Family Law Organisation Resolution has found that around 82% of children and young people with experience of parental separation or divorce would prefer their parents to split up if they are unhappy, rather than stay together.

Asked what advice they would give divorcing parents, one young person said, “Don’t stay together for a child’s sake, better to divorce than stay together for another few years and divorce on bad terms”; while another suggests children “will certainly be very upset at the time but will often realise, later on, that it was for the best.”

When asked what they’d most like to have changed about their parents’ divorce, 31% of young people said they would have liked their parents not to be horrible about each other to them, and 30% said they would have liked their parents to understand what it felt like to be in the middle of the process.

 

Speaking about the new findings, Jo Edwards, chair of Resolution, said:

 “Being exposed to conflict and uncertainty about the future are what’s most damaging for children, not the fact of divorce itself. This means it is essential that parents act responsibly, to shelter their children from adult disagreements and take appropriate action to communicate with their children throughout this process,and make them feel involved in key decisions, such as where they will live after the divorce.

“We should be supporting parents to choose an out of court divorce method, such as mediation or collaborative practice. This will help parents to maintain control over the divorce and ensure their children’s needs are, and remain, the central focus.”

 

Relate counsellor, Denise Knowles said:

“Evidence suggests that it’s parental conflict which has the most damaging effect on children and we see this played out in the counselling room every day.

“Of course, children usually find their parents’ separation extremely upsetting but as this research demonstrates, eventually many come to terms with the situation and adjust to changes in family life. There are plenty of steps that separating parents can take to ensure they reduce the negative impact on their children such as working to avoid constant arguing or speaking badly of the other parent in front of the kids.

“Parents can also involve their children by providing age appropriate and relevant information about the divorce or separation and what it means for them. Trying to understand children’s needs will make them feel secure and loved during this difficult time. Separating parents could also consider accessing support such as individual counselling, couples counselling, family counselling and mediation. ”

 

Parenting Charter

The survey results support the main advice Resolution shares in its Parenting Charter, which sets out what children should be able to expect from their parents during a divorce or separation.

These include children’s rights to:

  • be at the centre of any decisions made about their lives
  • feel and be loved and cared for by both parents
  • know and have contact with both sides of their families, including any siblings who may not live with them, as long as they are safe
  • a childhood, including freedom from the pressures of adult concerns such as financial worries

 

At a special event with MPs and Peers in Parliament, Resolution will be calling for the Government to share the Charter with all divorcing parents. The event will also see the launch of an online advice guide at www.resolution.org.uk/divorceandparenting developed by Resolution to help divorcing parents manage their relationship with their children and with each other during separation.