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   Pension sharing
  Must pension sharing be on a 50/50 split basis?
  Can pension sharing be achieved without going to court?
  Can pension sharing occur after divorce is final?
  Is pension sharing compulsory?
  Is a pension audit necessary for pension sharing?
  Can there be more than one pension sharing order?
  Is earmarking and pension sharing possible?
  Where does the money come from?
  How is the value of benefits expressed?
  When will the money be transferred?
  Can a pension sharing order be varied?
  Are there consequences if the scheme member remarries or dies?
  Are there consequences if the former spouse remarries or dies?

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Must pension sharing be on a 50/50 split basis?
There is no legal requirement for pension arrangements to be split 50/50. If agreement cannot be reached the courts will have to determine the percentage after considering other assets, the finances of each party and retirement benefits.

However, where the retirement benefits are significant the landmark case of White v White (2000) suggests the court should begin with an equal division of the matrimonial assets and only vary from this basis according to the merits of the case. Usually the parties involved will come to an agreement through their solicitors as to the percentage share of retirement benefits, whether this results in offsetting against other matrimonial assets, earmarking or pension sharing.

For example, it may be the wish of the parties to have an equal pension income in which case the pension fund split will not necessarily be equal. This is because annuity rates are based on age and life expectancy that will differ for men and women. Women will live longer receive more income over time in total, requiring a larger fund and therefore a larger percentage in the pension sharing order.


Can pension sharing be achieved without going to court?
It is not possible to divide the pension arrangements without going to court, the
step-by-step guide showing the process. The other matrimonial assets such as the family home can be transferred to one spouse or the other, this being agreed between the parties and recorded through the solicitors without going to court, however there must be a court order to divide the members retirement benefits. This is because the provider or scheme cannot act to divide a pension arrangement without a direction from the court.

These court proceedings do not have to be contested as in the majority of cases the parties have come to an agreement through their solicitors and only require a consent order from the court. In this case the petitioner will apply for a financial order and at the first appointment the court can bring to a conclusion the wishes of the parties by way of an earmarking order or pension sharing order.


Can pension sharing occur after divorce is final?
An application for divorce procedures and ancillary relief proceedings are separate processes and therefore pension sharing can and often will occur after the divorce is final. This process is shown in the
step-by-step guide. However, a pension sharing order cannot be made until the granting of the decree nisi.

At this time there is a short window or opportunity where the pension sharing order can be varied. Applying for a variation of settlement order would mean the pension sharing order could not be implemented. Once the decree absolute was granted and the pension sharing order implemented, no further variation is possible.


Is pension sharing compulsory?
Pension sharing is not compulsory and is only one of several options that can be taken during ancillary relief proceedings to divide the pension arrangements. For example, it may be more appropriate to use offsetting against other matrimonial assets where the members pension rights are not significant or use earmarking.

The court will consider the needs of both parties and may decide to ignore dividing the members pension rights if the couple are still young, married for a short time or the value of the pensions is too low to justify the costs associated with a pension sharing order. To decide on the best route the parties should take legal advice from a solicitor and financial advice from a pension expert.


Is a pension audit necessary for pension sharing?
In legislation the required valuation method is the cash equivalent transfer value (CETV). For cases where the pension arrangement are money purchase schemes such as a personal pension or stakeholder pensions and do not represent much money in relation to other matrimonial assets or in absolute terms, it is unlikely a court would require a pension audit especially if the cost could not be justified.

However the court must have regard to rule 2.51B of the Family Proceedings Rules 1991 where the pension arrangements are significant compared to the other matrimonial assets and complex in nature as is the case with a final salary pension, such that the CETV Method is not sufficient.

The court will be concerned with achieving a fair value of the retirement benefits for both parties and require expert evidence in the form of a pension audit to determine a suitably adjusted CETV reflecting the circumstances and specific needs of the parties on divorce. This will use the CETV from the provider as the basis of the valuation. An independent financial adviser (IFA) that is qualified as a pensions expert usually provides this audit.

Furthermore, a fair value must be ascertained in such cases as once the pension sharing order is implemented it cannot be varied in the future, so if a mistake is made at the data collection stage or valuation stage, this could result in a material loss for either party.


Can there be more than one pension sharing order?
A former spouse cannot make more than one pension sharing order against the same pension arrangement. However, where the partner has a number of separate pension arrangements such as a final salary pension and two separate stakeholder pensions and where the former spouse has a pension sharing order on the final salary pension, it will be possible at a later date or even at retirement age to apply for a pension sharing order on the stakeholder pensions.

This will not apply to divorces where the petition was made before 1 December 2000, the date from which pension sharing could be applied. It will be possible for a pension sharing order to be made against a pension arrangement that has been subject to such an order if it is from a previous marriage.

For example, a husband with a final salary pension divorces and is subject to a pension sharing order against the scheme. His second wife can also apply for a pension sharing order against the same scheme if he divorces for the second time, thereby applying two negative deferred pensions at normal pension age (NPA).


Is earmarking and pension sharing possible?
It will not be possible to make a pension sharing order where there is an existing earmarking order applied to the pension arrangement and this is stated in the Matrimonial Causes Act 1973 (MCA 73). This will be the case even it the earmarking order was applied by a previous marriage. Similarly where the former spouse has applied for a pension sharing order it will not be possible to apply for an earmarking order in relation to the same divorce, such as an order against the lump sum death benefit of an occupational pension scheme.

If for example on the husbands first divorce there was a pension sharing order applied against a final salary pension, then his second wife could apply for an earmarking order and use this against the lump sum death benefits of this pension arrangement to protect her maintenance payments, in the event of the husbands death before normal pension age.


Where does the money come from?
As a result of the pension sharing order the money for the settlement will come from the retirement benefits accrued within the members pension arrangements. This will be created firstly by a pension debit against the members pension rights leading to a pension credit of equal value for the former spouse. A scheme internal transfer or external transfer to another scheme will establish a new separate pension arrangement in the former spouses name as shown in the
step-by-step guide. It is this new arrangement that pays a tax free lump sum as well as a pension income to the former spouse at retirement age.

In many cases the spouse is nearing retirement and requires a pension income from either the internal or external transfer. Where this is a money purchase scheme, the spouse can use the pension fund to buy an annuity and has the option to use an open market option to search for the highest pension annuity. Once you have purchased an annuity it cannot be changed, so learn more about annuities, compare annuity rates and before making a decision at retirement, secure a personalised pension annuities offering guaranteed rates.

This is different from other matrimonial assets where settlement is achieved by offsetting a members retirement benefits against non pension assets and earmarking where an order is made against a members pension rights to pay the former spouse directly from that scheme, thereby not realising a clean break between the parties.


How is the value of benefits expressed?
The pension debit against the scheme members pension rights must be specified as a percentage in the pension sharing order made by the court or as a result of agreement between the parties and is documented in the pension sharing annex as shown in the
step-by-step guide.


If the court order is determined in terms of a specific amount rather than a percentage, then the pension debit will be made as the percentage this amount represents. The former spouse will receive a pension credit of an equal value to the pension debit.


When will the money be transferred?
A pension sharing order cannot take effect during a divorce procedure until the decree absolute is granted. The provider of the pension arrangement will then have 4 months in which to implement the pension credit starting on the day the order takes effect or if later, the day the provider receives the documents from the court as shown in the
step-by-step guide.

Within 21 days of receiving the pension sharing order the pension provider must provide the member and the former spouse with information about charges associated with the pension transfer. This will include a statement of why it cannot be implemented or when it will be implemented. Once the provider has completed the necessary calculations of the percentage required for the pension debit and completed the pension credit, within 21 days the provider must issue to both the member and former spouse a notice of discharge of liability.

This will show information about the value of the pension debit and pension credit, the remaining fund value to the member and how the parties have paid the charges.


Can a pension sharing order be varied?
The decree nisi must occur before a pension sharing order can be granted. Once the order has been granted it is possible to apply for a variation of settlement order and this will have the effect of preventing the pension sharing order from being implemented.

It is only when the decree absolute is granted and the divorce is made final that the order takes effect and it will no longer be possible to vary the pension sharing order. The reason for this is because any appeal will be out of time but also that special provisions in the MCA 73 as inserted by the Welfare Reform and Pensions Act 1999 (WRPA 99) to protect the pension scheme against further cash payment.


Are there consequences if the scheme member remarries or dies?
With regard to pension sharing, there will be no consequences for the former spouse if the scheme member remarries. Similarly if the member dies the former spouse will not be affected. Pension sharing creates a clean break between the parties pension arrangements on divorce.

Once the pension arrangements have been divided the former spouse has no further claim on the members pension rights but has now retirement benefits in his or her own right.


Are there consequences if the former spouse remarries or dies?
Pension sharing creates a clean break between the parties pension arrangements on divorce so there are no consequences to the spouse by remarrying, unlike earmarking. The principles of pension sharing are that the former spouse will receive the same rights and benefits within the pension scheme as the member.

For a defined benefit scheme such as a final salary pension where the former spouse is allowed an internal transfer, on his or her death the scheme rules provide for survivors' pension rights and lump sum death benefits that will be paid to the new person the former spouse has married, or if single, dependents pension rights to children.

If an external transfer is made because dual membership is not allowed, on death of the former spouse the benefits paid will depend on the new scheme rules and the specific provisions made by the former spouse.


In many cases the spouse is nearing retirement and requires a pension income from either the internal or external transfer. Where there is a clean break and this is a money purchase scheme, the spouse can use the pension fund to buy an annuity and has the option to use an open market option to search for the highest pension annuity, adding all the features necessary such as escalation, frequency of payment or a new survivors income. Once you have purchased an annuity it cannot be changed, so learn more about annuities, compare annuity rates and before making a decision at retirement, secure a personalised annuity quote quote offering guaranteed rates.

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