My husband and I are getting a divorce. I gave up work many years ago to support the family and as we are divorcing I have a number of financial concerns, one of which is regarding my husband’s private pension.
He refuses to disclose its size and I am concerned I am going to lose out on money which I was relying on. Do I have any legal entitlement to this money?
Isobel Mundy, senior solicitor at law firm Bircham Dyson Bell, says it is not uncommon in divorce for one spouse to have a much greater pension provision than the other, particularly where one has stayed at home to look after the children. It is an understandable concern for those who have no independent source of income for their retirement.
The good news is that the court can order a division of all the matrimonial assets on divorce — including the pension — and your contribution in supporting the family is just as valid as bringing in an income. Private pensions, occupational pensions and the additional state pension can all be shared, subject to obtaining a court order and decree absolute.
Pensions and the family home are usually the largest components of total assets. Therefore, as with property, it is important to obtain a proper valuation for any pension. In divorce or dissolution proceedings, pensions tend to be valued using the “cash equivalent transfer value” (CETV) which is provided by the pension provider.
If your spouse is unwilling to disclose the value of their pension, they can be ordered to do so as part of the financial disclosure process. Alternatively, the court can draw “adverse inferences” from such conduct. In a recently reported case where a husband was found deliberately not to have disclosed a pension, the judge concluded that the scale of the dishonesty was an indication that the pension was valuable.
The most common method of sharing a pension is by way of making a payment out of the existing pension into a separate fund, either with the same provider, if its rules allow, or into a designated fund of the receiving party’s choice. Alternatively, it may be possible to “offset” the value of the pension by having a larger share of other assets, for example through the sale of any property. Don’t assume that a particular percentage share equates to the same percentage of income. You may need advice from a pension expert.
The size of share that the court can order will depend on your circumstances, so it is important to seek guidance at an early stage from a solicitor who can provide you with specific advice, go through your options and next steps with you, including starting divorce proceedings if you have not already done so. Going to court is not inevitable. There are alternatives, including mediation and the collaborative process as well as solicitor-led negotiations, to help you reach an agreement then make a joint application for the necessary court order, which is an “on paper” exercise.
It is important, early on, to find out about your own state pension entitlement which is a potential source of income to be taken into account. Currently you need a total of 30 qualifying years of national insurance contributions or credits for the full basic state pension, so do consider and take advice on whether you can make top-up payments now. You should also consider specialist financial advice to make sure that what you have will meet your needs now and into retirement.
Jo Edwards, partner at law firm Forsters, says that during financial proceedings on divorce, parties are under a duty to make full and frank disclosure of their finances. Up-to-date information and documentation about the value of your husband’s pension should be sought and if he refuses, the court will make an order requiring him to disclose it. Depending upon the nature of the pension and the rules of the scheme, it may be helpful to ask an actuary to review the information provided and advise on the fairest way to split the pension.
Only the member of the pension scheme can request a valuation. In divorce, pensions are valued using the “cash equivalent transfer value”: the amount you’d get if you moved your pension elsewhere. It might be less than the “fund value” because it will include charges for transferring. If it is a final salary or other salary-related pension scheme, getting an accurate valuation might be more complicated.
In divorce, it is most common for a “pension sharing order” to be made, whereby a proportion of your husband’s pension will be transferred into your name. A deferred order can be made if your husband’s pension is already in payment but you are not yet of retirement age. Alternatively, the court could make a “pension attachment order”, whereby your husband’s pension provider would be directed to pay some or all of the payments he would otherwise receive to you; or offset the value of the pension against other marital assets. The court can also order a deferred lump sum, to be paid when he retires.
As judges have wide discretion as to how to approach finances on divorce, it is difficult to predict what the ultimate division of assets on divorce will be. The judge will look at a checklist of factors (including your respective financial resources and needs, now and in the foreseeable future) and strive to reach a fair outcome for both of you.
The court will view your contribution at home as equal to your husband’s financial contributions. You will certainly not be penalised for giving up work to support the family and the court will want to ensure that you are provided for until you are able to be financially independent (and, if this is not possible, for life).
Should your husband continue to refuse to co-operate over disclosure of his pension, costs penalties can be imposed for unnecessary costs and delay caused by his refusal to co-operate, if it necessitates additional questions or court hearings. The court may also infer that the pension exists and attribute a notional value to it before giving you a larger share of non-pension assets to “compensate” you.
In particularly serious cases, imprisonment for contempt of court is possible if orders for disclosure are ignored. If, later, it is discovered that your husband failed to disclose something material that would have led to a different financial outcome, the court may set aside or vary any previous order that has been made, in order to provide redress.
The opinions in this column are intended for general information purposes only and should not be used as a substitute for professional advice. The Financial Times Ltd and the authors are not responsible for any direct or indirect result arising from any reliance placed on replies, including any loss, and exclude liability to the full extent.
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Date published: 02 October 2018
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