Divorce and pensions is very significant. After the value of the former matrimonial home the pension provision of one or both spouses may be the largest capital asset of the marriage. Pensions and divorce is a question which has assumed greater and greater importance especially since the Pensions Act 1995 and the Welfare Reform and Pensions Act 1999.
The courts have long had the power to take pensions into account in dividing up the matrimonial assets. Very often the husband might have a substantial pension provision and the wife might have none or a very limited pension provision because, for example, she has given up her job in order to look after the children. Such a wife is very likely to wish to be "compensated" for her lack of pension entitlement.
While the spouses remain married the wife might legitimately expect that when her husband retires she will benefit from his pension and, in the event that anything happens to him, she might expect to receive a surviving spouse's pension. When they divorce these benefits are lost and the wife might be very concerned that she has no provision in her own right and that she has little chance of being able to rectify that within any working life that may be left to her.
Of course, it may be that both spouses have similar pensions or the wife may have a larger provision than her husband but typically in pensions and divorce the problem arises where the wife has very little provision and such pension entitlement as there is belongs to the husband.
Nevertheless, it is important to realise that there is no "automatic" entitlement to pension sharing. People often seem to think that just because they have been married they are entitled to half of everything - including the pension. That is not the case. Divorce pension entitlement is more subtle than that.
In fact when a marriage breaks down the courts have to decide how to divide the matrimonial assets and they do so according to principles laid down by Parliament and, in particular, section 25 of the Matrimonial Causes Act 1973. So, for instance, they will have regard to the needs of any dependent children of the family above all else. That might result, for example, in the former matrimonial being transferred to the wife because she will need to live there as the home for the children. So there might then be only one other substantial matrimonial asset - the pension provision of the husband. Having ordered the husband to transfer all the equity in the house to the wife because the need for accommodation is obviously very important it would then normally be quite wrong also to make him part with half his pension on the basis of some sort of notion that the wife always gets half. In such a divorce pensions might be the only asset left to the husband and so the courts may prefer to let him retain more of them in return for the wife getting the house. She might, for instance, be able to sell the house and realise some of the equity at a later date if she sells it when the children have ceased to become dependent and the house is then too large for her needs.
This in fact was the way that pensions were very often treated at first - by way of so called "off setting". In ancillary relief proceedings pensions are usually given a cash value by the courts - and the so-called "transfer value" is the figure which is often taken. This is the value the pension fund would have if it was transferred out of one scheme into another on a given date and pension fund trustees are very used to providing this information. Of course, a transfer value is not exactly the same as cash. After all, a sum of money in a bank account with which one can do as one wishes is not the same as the same sum of money as a "transfer value" which is basically the right to buy a pension for a given amount of money at some date in the future. But a pension has to be given a value in one way or another and it is by taking the transfer value that it is normally done.
So, then, say the former matrimonial home has an equity of 100,000 pounds and the husband's pension fund has a transfer value of 50,000 pounds. Instead of saying that the former matrimonial home should be sold and the proceeds divided equally between husband and wife and that the pension should also be divided equally a court would be much more likely to say that the wife should have the house and the husband should retain the pension. This would provide accommodation for the wife and possibly children while allowing the husband to retain a substantial asset. It was very often a more practical solution than dividing both house and pension.
This method of offsetting a pension against other assets is still a very common way of dealng with divorce pension entitlement and the couple themselves often prefer it for various reasons.
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