LAW REPORT: Court can vary husband's pension scheme

Brooks v Brooks; House of Lords (Lord Keith of Kinkel, Lord Ackner, Lord Lloyd of Berwick, Lord Nicholls of Birkenhead and Lord Steyn) 29 June 1995

A pension scheme in which the husband was the only member and under which provision could be made for his wife on his death was a marriage settlement which the court had jurisdiction to vary to provide a pension for the wife on divorce.

The House of Lords dismissed an appeal by the husband against decisions of the Court of Appeal and Mr Justice Ewbank affirming a district judge's order varying the husband's pension fund to provide pensions for the wife on divorce.

The parties divorced after a 12-year marriage. The husband was then 63 and the wife 54. The husband's retirement benefits scheme was set up by his company, which had also employed the wife. The husband was the only scheme member. The benefits were to be provided under a policy with the Equitable Life Assurance Society.

The rules provided that the husband was entitled at his retirement to elect to give up a portion of his pension to provide, from the date of his death, a deferred pension for life for his spouse and that a lump sum death benefit was payable if he died while still employed or within five years of drawing his pension.

The rules also provided that, if a benefit payable under the policy exceeded the maximum permissible, the company was entitled to use the excess to augment existing benefits under the policy or provide additional benefits. Any unused excess would be refunded to the company. The district judge varied the scheme to provide the wife with an immediate pension and a deferred pension from the husband's death.

The issue was whether the court had jurisdiction to vary the terms of the pension scheme under section 24(1)(c) of the Matrimonial Causes Act 1973 which empowers the court to make "(c) an order varying for the benefit of the parties to the marriage . . . any ante-nuptial or post-nuptial settlement . . . made by the parties to the marriage".

John Elvidge and Geoffrey Topham (Girlings, Canterbury) for the husband; Martin Pointer and Nicholas Mostyn (Paisner & Co) for the wife.

Lord Nicholls said that there was no express power enabling the court to vary pension schemes. In English law "settlement" was not a term of art with one specific and precise meaning. In the context of section 24 the disposition must be one which made some form of continuing provision for both or either parties to a marriage.

If each of the unexceptional features of the husband's pension was considered in isolation, it was easy to conclude that the scheme did not constitute a marriage settlement made by the husband. The primary benefit was a pension payable to him. That, however, could not be the right approach. The husband was to be taken to have entered into the scheme with the intention of providing for the retirement of himself and his wife. The feature which placed the scheme on the marriage settlement side of the line was the presence of the rules relating to death benefits.

It would be difficult to conclude that a scheme under which benefits were payable exclusively to the scheme member was a marriage settlement. The court had power to vary the scheme in the present case so far as it constituted a settlement made by the husband.

The surplus money needed to be distinguished from the pension and death benefits. The surplus money did not form part of the settled property. However, the husband's company was insolvent, with creditors including the Inland Revenue. A variation of the scheme, which met with the Inland Revenue's approval, so that the wife's pensions were provided in priority to, and if necessary in dimunition of, the pension payable to the husband, was appropriate. It was for the husband to take any steps necessary to enable the surplus to be used to maintain his pension at the maximum permitted level if part of the fund was used for making pension provision for the wife.

Not every pension scheme constituted a marriage settlement. Even when a scheme did fall within the court's jurisdiction to vary, it would not be right for the court to vary one scheme member's rights to the prejudice of other scheme members.

If the court was to be able to split pension rights on divorce in the more usual case of a multi-member scheme where the wife had no earnings of her own from the same employer, legislation would be needed.