What happens to my pension when I divorce?
A common concern clients have is how pensions may be split following separation or divorce. How can a financial remedy achieved that will be fair for all?
As the recent case W v H (divorce: financial remedies) [2020] EWFC B10 highlights, there is considerable interest in how pensions are dealt with in reaching a financial remedy in a divorce or separation case.
Furthermore this case is of interest as the Judge preseiding, HHJ Edward Hess is co-chair of The Pension Advisory Group (PAG) and considered the opinions of PAG as set out in A Guide to the Treatment of Pensions on Divorce: The Pension Advisory Group Report, published in July 2019.
His judgment made clear that a simple ‘straight line approach’ to discounting pensions and offsetting pensions against other assets can both risk unfairness. Such decisions are not a one size fits all approach and each case is unique.
The straight line approach to splitting pensions is when a deduction is made from the Capital Equity (or CE) of a pension fund with reference to a calculation. The calculation involves dividing the number of years of the marriage (including seamless pre-marital cohabitation) by the number of years over which the pension fund disputed is accrued.
HHJ Hess stated no ‘one size fits all’ solution as to whether remedies must focus on capital equality or equality of income.
For needs-based cases, this judgment, PAG, and the Family Justice Council have all encouraged that the income-yield of a pension should be considered, rather than focus entirely on the CE and capital outcome.