After the matrimonial home, pension funds are usually considered to be the second largest matrimonial asset and they often need to be valued and dealt with when negotiating financial settlements between spouses on divorce.

The law

In December 2000, the Welfare Reforms and Pensions Act 1999 came into force and the Court was given the power to make orders in relation to either spouse’s pension fund within the course of divorce proceedings. As a result of this legislation, pension funds have now become a key topic of discussion when financial settlements are being negotiated.

The most common type of order that can be made under the legislation is a Pension Sharing Order whereby the pension fund of one spouse is “shared” with the other spouse into order to create two separate funds. For example, if Mr X’s pension fund is worth £200,000 but Mrs X’s is only worth £100,000, the Court can make an order for a percentage of Mr X’s fund to be given to Mrs X to create equality.

Difficulties in dealing with pensions on divorce

The difficulty in dealing with pension funds on divorce is that the fund in question needs to be valued and each spouse needs to obtain something called a “cash equivalent transfer value” (a CETV) which gives an estimate of the market value of their fund. Once this information has been obtained, it then has to be decided how the fund is to be dealt with and what options are available in the specific case in question.

Whilst a family solicitor can give general advice to a spouse regarding pension funds on divorce and how such funds can be shared, they cannot give specific or detailed advice as to exactly what percentage share any particular spouse should receive. Furthermore, they cannot calculate the CETV or determine whether a CETV provided by a pension company is in fact accurate or a true reflection of the value.

The role of an actuary

Family solicitors can however advise spouses about the possibility of instructing an actuary, or a pension expert as they are commonly known, to prepare something called a ‘pension report’. A pension report will not only set out a detailed analysis of the parties pension funds but it will give options as to how any funds can be shared or offset within any settlement. Actuaries are commonly instructed by the parties on a joint basis to ensure that they prepare an unbiased and fair report.

Our advice

Where pension funds form a large part of the matrimonial assets or are estimated to be substantial in value, we strongly advise clients to instruct an actuary and obtain a pension report. We do this as it ensures that they obtain a more accurate valuation of their fund, as well expert advice as to how the pension fund can be “settled” between them.
A Consent Order (the document that sets out the financial agreement on divorce) is in full and final settlement of all financial claims that either party can make against one and other and it is imperative that the “best” settlement is achieved for all concerned, and instructing an actuary was of assisting with this.

Please contact Lorna Barry or Kirsty Bowers if you would like more information about the issues raised in this article or any aspect of divorce or family law.

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