Pensions are included in the matrimonial assets which are divided between the husband and wife on divorce. Nowadays people don’t tend to have one job for life. Many people have various different pensions, but they might only be paying into one of them at a time. Other pensions, which might be with previous employers, can be frozen, in the sense that no contributions are being made to them.
A recent case in Scotland has highlighted some of the differences between English and Scottish divorce law. The case of McDonald v McDonald raised the question of what should happen if the husband or wife hadn’t been paying into the pension during the marriage.
Facts
Mr and Mrs McDonald were married in 1985. He had joined the British Coal Pension Scheme in 1978. They split up in 2010 and that point the value of his pension for the period of the marriage (1985 to 2010) was worth about £139,000. However, only five months after they married he had an accident at work and was retired on ill health grounds and started to draw his pension. So for almost all of the marriage he was a pensioner member of the scheme, not an active one.
Mr McDonald said that only the value referable to the period during the marriage when he was an active member should be in the pot for division. Not surprisingly, Mrs McDonald disagreed. It made a huge difference – if only the value for the active membership was included it brought the amount for the value down to about £10,000.
Law
Pension experts generally say that there are three types of pension scheme membership: (1) Active membership – where contributions are currently being made; (2) Deferred membership – where no contributions are being made and the pension is “frozen” until the member retires; and (3) Pensioner membership – where the member has retired and is actually drawing the pension.
In Scotland the value of your pension is taken to be the Cash Equivalent Transfer Value (CETV.) It’s only the part of the value which is “referable to the period of the marriage” which goes into the pot of matrimonial assets to be split up. So, if you have been a member of a pension scheme for 20 years, but only married for 10, then half of the value of your pension will go into the pot.
Decision
The court agreed with Mr McDonald and only the value for the active membership was included. Mrs McDonald appealed and, unusually, the three appeal judges didn’t agree on what the right outcome should be. By 2 to 1 they favoured Mr McDonald’s argument, deciding that the value of the pension to be included in the pot was only £10,000, but there might well still be some scope for this point to be argued again in future divorce cases.
Comment
If you have a personal pension, rather than an occupational one, it might not be so clear whether you have stopped being an active member. You might be making ad hoc payments into it from time to time. Would the court’s decision have been the same if Mr McDonald hadn’t been drawing his pension throughout almost the whole of the marriage, but had been a deferred member instead of a pensioner one? After all, Mrs McDonald had presumably had the benefit of that income. There might also be a question of special circumstances justifying unequal division of the value of the pension, rather than a straight 50/50 split.
Mrs McDonald might still appeal to the Supreme Court, but assuming that she doesn’t, it’s fair to say that in most divorces only the value of the pension which relates to active membership will be taken into account.
English family law commentators have criticised the decision in this case, saying the Scottish system is too formula-based and inflexible. The outcome for Mrs McDonald has been called “draconian”. That is almost certainly too strong, but these comments do underline the fundamental difference between Scottish and English family law. Here we have the relative certainty of a statutory regime for valuation and division of assets. In England the courts have wide discretion to make an award based on “fairness”, making it harder for family lawyers to predict the outcome of any particular case.
If this all sounds complicated, it’s because pensions remain a complex part of divorce law. They come in lots of different forms and it’s absolutely crucial to make sure that you have expert advice about how your pensions should be dealt with on divorce.
If you’d like any more information about pensions and divorce, or the differences between the Scottish and English systems please contact a member of our Family Law team.
