Separate lives, joint pension

New laws will make it easier for couples to divide assets, writes Pamela Atherton

One of the most bitterly contested problems of getting divorced has traditionally been how to carve up the main salary-earning partner's pension. But a new Bill is set to give divorcing couples greater flexibility when dividing up their assets, and will make it easier for them to split any pensions.

Because of the complexity of the Welfare Reform and Pensions Bill, pension sharing is not expected to come into force until the end of 2000 at the earliest. Until then, divorcing couples, can use "offsetting" or "earmarking" as a means of accounting for pension rights in financial settlements on divorce or judicial separation.

In 1973, the Matrimonial Causes Act allowed courts to consider pension rights in divorce settlements, but courts could only offset the value of pension rights against other matrimonial property. For instance, a divorcing mother with children might keep the house and offset this against the husband keeping his pension.

Courts could not order pension schemes to pay divorced wives a pension, and it was often difficult to obtain accurate information about the value of the member spouse's (usually the husband's) pension.

The 1995 Pensions Act introduced provisions for courts to earmark the member spouse's pension so that payment of some or all of this pension could be made to the non-member spouse (usually the wife) on the member's retirement.

Earmarking orders can also be used to order payment to the divorced wife of some or all of the maximum lump sum available on the ex-husband's retirement and the payment of death-in-service benefits to the ex-wife on his death.

But earmarking poses a number of problems, particularly in how the pension benefits should be valued. Earmarking also precludes a clean break between the divorcing couple, as the ex-wife remains linked to her former husband until his retirement. Furthermore, the divorced wife forfeits any right to her ex-husband's pension on his death or if she remarries.

For a young divorcee, the likelihood that she will remarry is quite high and her financial settlement should account for this. A divorcee can also take out insurance against her ex-husband dying before her.

Another problem with earmarking orders is that many are poorly drafted because few matrimonial lawyers have pensions expertise. The wife should ensure that her husband's pension is correctly valued by taking specialist advice from a pensions lawyer or an actuary. Otherwise, she may find that the earmarking order is worthless because it is not in accordance with the pension scheme's rules.

Pension sharing, by contrast, will allow occupational pension scheme trustees to give a divorced wife a "credit" in her ex-husband's pension scheme at the time of the divorce, effectively making her a deferred member of the scheme while a debit is made against the ex-husband's pension to reflect this.

The divorced wife can then choose to leave the deferred pension in her former husband's scheme or transfer it to an occupational or personal pension scheme of her own. Where the divorced wife has no existing pension arrangements of her own, or where her ex-husband was a member of an unfunded scheme (for instance, a public-sector scheme), she will have to leave the benefits in her ex-husband's scheme.

Most pension benefits can be shared in this way, except the basic state pension, because a divorcee can already claim a state pension based on her former husband's national insurance contributions.

For pension-sharing purposes, the pension must be valued on "the cash- equivalent transfer value" (CETV), which values the pension as though the member were leaving the scheme at the time of the divorce. This method is not entirely satisfactory, as it does not take into account potential salary and promotion increases before retirement, any surplus or deficit in the scheme, discretionary increases, death benefits or guaranteed annuity options (the latter in personal pensions).

Although the CETV is the only figure that can be used in court, divorcing wives' lawyers can use their own figures when negotiating the financial settlement. Any administrative costs incurred by pension sharing will be passed on to the divorcing couple, either directly or via reduced pension benefits.

The ex-husband should consider topping up his pension to compensate for the debit made against his scheme benefits.

Pension sharing is not retrospective, so it cannot be applied to any divorce settlements effected before the Welfare Reform and Pensions Bill becomes law. There is also no compulsion on divorcing couples to use pension sharing. Some may find earmarking or offsetting more appropriate.

"This is an area where people must take great care. Their long-term standard of living is at stake," says Jane Marshall, pensions and divorce specialist at law firm Hammond Suddards.

Start your day with The Independent, sign up for daily news emails
News
news
New Articles
tvDownton Abbey Christmas special
Arts and Entertainment
Wolf (Nathan McMullen), Ian (Dan Starky), The Doctor (Peter Capaldi), Clara (Jenna Coleman), Santa Claus (Nick Frost) in the Doctor Who Christmas Special (BBC/Photographer: David Venni)
tvOur review of the Doctor Who Christmas Special
News
peopleIt seems you can't silence Katie Hopkins, even on Christmas Day...
PROMOTED VIDEO
News
i100
Arts and Entertainment
Jenna Coleman as Clara Oswald in the Doctor Who Christmas special
tvForget the rumours that Clara Oswald would be quitting the Tardis
Arts and Entertainment
Japanese artist Megumi Igarashi showing a small mascot shaped like a vagina
art
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Life and Style
fashion
Arts and Entertainment
Left to right: Stanley Tucci, Sophie Grabol and Christopher Eccleston in ‘Fortitude’
tvSo Sky Atlantic arrived in Iceland to film their new and supposedly snow-bound series 'Fortitude'...
Arts and Entertainment
tv
News
The Queen delivers her Christmas message
newsTwitter reacts to Her Majesty's Christmas Message
Sport
sport
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

Day In a Page

A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

Christmas without hope

Gaza fears grow that conflict with Israel will soon reignite
After 150 years, you can finally visit the grisliest museum in the country

The 'Black Museum'

After 150 years, you can finally visit Britain's grisliest museum
No ho-ho-hos with Nick Frost's badass Santa

No ho-ho-hos with Nick Frost's badass Santa

Doctor Who Christmas Special TV review
Chilly Christmas: Swimmers take festive dip for charity

Chilly Christmas

Swimmers dive into freezing British waters for charity
Veterans' hostel 'overwhelmed by kindness' for festive dinner

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all