Pensions – Keeping Healthy Through Active Service
As many of you who have been through the process of separation and/or divorce will know, pensions get taken into account when quantifying the net matrimonial property to be divided. The law provides that there should be a “fair share” of the net matrimonial property, and this is presumed to be an equal share, unless there are any specific legal reasons why it should not be. So when we are advising clients as to what constitutes a fair share of the net matrimonial property, we require to firstly ascertain what the net matrimonial property actually consists of.
Pensions can be particularly valuable in the context of a separation and/or divorce, and it is the “Cash Equivalent Transfer Value” (CETV) which is looked at to determine a capital value for the purposes of a separation.
Only the proportion of rights referable to the period of the marriage will fall into the matrimonial pot and there is a specific apportionment which can be carried out to ensure that not the entire value of the pension is taken into account, only the marital portion.
Until August 2015, to work out what the CETV would be, solicitors were directed to look at what the current Cash Equivalent Transfer Value was, then work out the days between the date of marriage and date of separation, and apportion that by the number in days of membership of the pension scheme. It was the words “period of the membership” of a party in the pension arrangement before the “relevant date” which has been the subject of recent case law. From many years this has caused some difference of opinion as solicitors have argued over whether this “period of membership” has meant active membership or any other type of membership for example deferred or pensioner membership. A majority decision handed down from a Court of Session appeal on 11th August 2015 has now upheld that the “period of membership” in the pension scheme should only be the period of active membership, and not any other type of membership; the period that somebody is a deferred member or a pensioner member is now disregarded when working out the capital value of a pension for divorce purposes.
This will have far reaching consequences for some members who have been a member of a pension scheme for some time, but only a short period of that time was during active service. Thomas McDonald whose favourable decision was appealed against by his wife Anne is no doubt delighted. In his particular case, he joined the pension scheme in December 1978. He married Mrs McDonald in March 1985, and left active service and ceased contributing towards that particular pension only five months later. A CETV using an active period of membership i.e. five months, resulted in a capital pension value of £10,002 having to be taken into account. Mrs McDonald submitted the entire membership of the pension should be taken into account which would have meant a figure of £138,734 going into the matrimonial pot to be divided. As you can see, this is quite a difference!
If you have a pension which you think needs to be taken into account in quantifying matrimonial property, get in touch with us. We know the appropriate calculations to be carried out and notwithstanding this particular Court of Session case, you may find that there are some “special circumstances” which could justify a departure from a fifty/fifty split in any event keeping your pension as healthy as possible for your retirement.