Research highlights decline of pension sharing orders

Graeme Barclay, Family Partner, was recently selected for interview to contribute towards important research conducted by Cardiff Law School. The aim of the research was to ascertain how often the courts make orders on divorce sharing pensions between couples, as initial signs show they are not as popular as predicted they would be.  Graeme explains further on the purpose of the research, and what this means for couples in the future.

“A pension sharing order is an order a judge can make in a financial case following divorce and can be made either by agreement between the parties or by a decision being imposed upon the parties following a disputed hearing,” explains Graeme.  “In a nutshell it separates the value of one person’s pension and transfers a share of the pension (in most cases of a husband) into the pension fund of the wife. For example a pension sharing order could be made that 50% of the husband’s pension be transferred to his wife. The wife would not get the money herself until she retired as it has to be invested into her own pension fund.”

In conducting this research, the team had been given access to read through court files and talk to judges and solicitors.  “The report, which was published recently, came to the same conclusion as my own experience of pension sharing, with some relief,” explains Graeme.  “This is that courts make pension sharing orders much less frequently than was originally envisaged when the law changed over a decade ago allowing such orders to be made. This isn’t particularly because judges are opposed to making such orders but they are often something that parties don’t seek despite how important we are all told it is to plan for your retirement with an ever ageing population.”

The purpose of pension sharing orders is to try to bring about a fair distribution of assets between a husband and wife in a divorce.  “Is it fair that a husband whose career (and pension value) has progressed without interruption throughout the marriage should retain the entire pension on separation?” questions Graeme.  “Typically the wife, who by agreement has worked part time or not at all sacrificing her career, and her pension, in order to raise the family and look after the family home, would have a pension fund with a much lower value.  Whilst of course not all relationships and families work in this way the research found that it was typically husbands who had the pension fund with the higher value and that the wives were missing out by not claiming a share of the fund.”

So why the reluctance to seek pension sharing orders?  Graeme explains, “There are several reasons, but the researchers from Cardiff found that the main one is that the party without the pension chose not to have a share of the other party’s pension but instead to have a higher share of the available money at the time of separation.  So for example a couple might agree that the wife will obtain 65% of the sale proceeds of the family home in order to rehouse her, but in return she would agree not to make a claim upon the husband’s pension. There is often nothing wrong with this arrangement, because the wife in our case may well feel that she needs as much of the equity from the house now as she can and will worry about pensions at some other time. The researchers were concerned that whilst there are cases where an offsetting arrangement like this is a sensible approach, overall the person agreeing not to make a claim upon the other parties pension may have been selling themselves short in terms of a fair division of the assets from the marriage.”

Other reasons cited as to why pension sharing orders aren’t made as much include the view that marriages are now shorter than they were meaning there is less time during the marriage to build up a pension fund and secondly that people were paying less into their pension funds, if they had one at all, making pension sharing orders unnecessary.

Graeme concludes, “There are significantly less pension sharing orders made than was first envisaged. The research showed that most pension sharing orders are made in cases where parties are legally represented. As legal aid is now rarely available for legal representation in divorce cases as time goes on it may be that pension sharing orders are made less and less. It’s clearly important for separating couples to seek specialist advice in relation to pensions upon separation. Those that don’t could find they are missing an opportunity to provide for their retirement in the way that was intended during their marriage.”

For more information on divorce or pension sharing orders, please contact Graeme or the Family Team on 02380 717431 or you can visit their section of the website here.

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.