Law Report: Husband's pension varied: Brooks v Brooks - Court of Appeal. (Lord Justice Neill, Lord Justice Hoffmann and Lord Justice Waite): 26 May 1994

The potential benefits given to a spouse of an employee under the employee's pension scheme were capable of rendering the scheme a post-nuptial settlement which could be varied in matrimonial proceedings. However, the court should not vary a pension scheme if the rights of third parties are likely to be affected.

The Court of Appeal (Lord Justice Hoffmann dissenting) dismissed the husband's cross-appeal against Mr Justice Ewbank's order upholding the district judge's variation of the husband's pension scheme and dismissed the wife's appeal against Mr Justice Ewbank's reduction of the wife's share of the sale proceeds of the former matrimonial home.

The marriage of the husband, 64, and the wife, 56, broke down in 1989 after 12 years. The husband was the sole shareholder of a building company which had ceased to trade. The company had established a pension scheme in 1980 for the benefit of the husband which entitled the husband, on retirement, to surrender a portion of his pension entitlement for the benefit of a spouse or dependant.

The district judge treated the pension scheme as a post-nuptial settlement which was capable of being varied under section 24(1)(c) of the Matrimonial Causes Act 1973, and varied it to give the wife a modest pension. That order was upheld by Mr Justice Ewbank who reduced the district judge's awards to the wife on the sale of the home from pounds 150,000 to pounds 110,000. She appealed from the downward variation of the order and the husband cross-appealed on the grounds that there was no jurisdiction to vary the terms of the pension scheme because they did not constitute a post-nuptial settlement.

John Elvidge (Girlings, Maidstone)for the husband; Martin Pointer (Paisners) for the wife.

LORD JUSTICE WAITE said that the wife, so long as she remained a wife, had a potential interest in the fund as a potential appointee under the husband's power to surrender part of his pension rights in her favour. Was that sufficient to render the scheme a post-nuptial settlement? The husband was entitled to the benefits of the policy and he had the power to surrender part of those benefits. It was that power which gave the scheme the character of a settlement, and it was the inclusion of a spouse within its objects which gave the settlement its nuptial element. The scheme amounted to a post-nuptial settlement.

The next question was whether the jurisdiction to vary a scheme was limited on policy grounds. Courts were empowered to compensate spouses for loss of pension through lump sum and property adjustment orders. Private pension schemes were too varied to be treated empirically as a class. It had to be accepted that many pension schemes in which provision was made for an employee's wife or widow would qualify technically as 'post-nuptial settlements' and would theoretically be open to invasion of their funds by the matrimonial jurisdiction.

In practice, however, the courts would be most unlikely, save in very unusual and exceptional circumstances, to allow the variation power to be used to reduce or disturb the rights or potential rights of people outside the marriage.

The touchstone test, therefore, would be to inquire whether any proposed variation of the pension arrangements would be liable to affect the rights of third parties. If there was any risk that it might, the court would abandon consideration of any direct interference under section 24 and would use its general powers.

If it was not apparent to the district judge whether rights of persons other than the spouses and their children would be affected by any variation of the pension, the judge would direct the necessary information to be provided. If reasonable objection was made to the proposed variation by the third parties potentially affected, it was most unlikely that the variation would be allowed to proceed. Here no third-party rights arose. There was no objection of principle or policy to the scheme being varied to make limited pension provision for the wife. The husband's cross- appeal would be dismissed.

Turning to the wife's appeal, the criticisms of the judge's downward variation did not vitiate the judge's conclusions.

Lord Justice Hoffmann, dissenting, said that the pension scheme conferred benefits on the husband solely in the character of employee and was not a post-nuptial settlement, although it arguably gave the husband power to create one on retirement.

Lord Justice Neill, agreeing with Lord Justice Waite, said that the policy paid proper regard to the husband's obligations to provide for the wife and was part of the family assets. This was not a fund from which the pensions of other individuals might become payable. As a general rule, the court should not attempt to vary the terms of a pension scheme if the rights of third parties were likely to be affected.