Giles Robinson, Family Law Partner, provides an update on the treatment of pensions during a divorce.
The recently reported case of W v H, whilst a first instance decision, is the first reported case with regard to the issues that were addressed in the Report of The Pension Advisory Group on the treatment of pensions on divorce, that was published in 2019.
Prior to that report, parties to a divorce might well have thought it normal that that proportion of their pensions which they had accrued prior to their cohabitation should be excluded from consideration when resolving financial issues on divorce. In fact, practice varied widely around the country and the report suggested that such an approach should be unusual. It said that in needs based cases it would generally be appropriate to aim to equalise the income that the parties would have from the pensions that have accrued up to the date of separation (i.e. including pre-marital accruals) and that most cases (even those involving some millions of pounds) will be needs based cases. Whilst not completely ruling out the possibility of an argument that pre-marital accruals should be excluded from consideration, it certainly seemed to make such an approach rather harder.
In W v H the most significant asset, by some considerable margin, was the value of the husband’s defined benefit pension. The husband had worked for the same company since 1987. He and the wife started to live together some 12 years later.
Ignoring the husband’s pension that accrued pre-marriage would have meant that the husband would have retained an annual gross pension income of £54,365, whilst the wife would have had £22,036. Equalising the pension income (on the basis of what they had accrued so far, including pre-marital accruals) would have meant that they would each receive a pension income of £36,119 per annum gross. This, therefore, would make a significant difference to each of them.
The Court followed the guidance in the Report of The Pension Advisory Group, concluded that this was a “needs case”, and that the proper and fair approach was to equalise incomes on an equal basis taking into account all the pensions (i.e. including pre-marital accrual).
This is only the first case to be reported on this subject, and there may well be more. However, on the basis of the information presently available it seems that if a person who is intending to marry would like to protect the pension that he/she has developed prior to the marriage then a pre-nuptial agreement is something that must be seriously considered, as this might at least help the Court to conclude that this is a case that should be treated differently.
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