It has recently been announced that divorce laws will be changing. This follows the Ministry of Justice’s consultation on reforms that will remove the need for blame on the breakdown of a marriage and introduces joint applications. The changes are designed to allow for more amicable divorces, with the aim of reducing conflict and making for better ongoing relations, especially when children are involved.
We won’t actually get the changes until Parliamentary time allows (how many times have we heard that one of late!) but they are coming.
Less well publicised, is the Divorce (Financial Provision) Bill that is crawling its way through Parliament. This is a private member’s bill that, slightly unusually, started in the House of Lords back in July 2017 but has now progressed all the way through and into the House of Commons. As a private bill it’s by no means certain to ever become law but having cleared the upper house it’s not beyond the realms of possibility.
If the bill does become law then it may significantly change how assets are shared on divorce.
The bill proposes restricting financial orders to property acquired during the marriage, except as per any pre-nuptial/post-nuptial agreement (with greater clarity around the legal status of these). It specifically includes pension rights which could be the subject of a pension sharing order.
In principle this means that only contributions and accruals during the course of the marriage, and associated growth, should be taken into account for sharing purposes. This sounds reasonable in theory but problematic in practice.
Take Mr & Mrs Smith who got married in June 2005 and are now seeking a divorce.
Mr Smith’s adviser carried out a consolidation exercise in 2010, bringing together four previous workplace pensions into a SIPP which both Mr Smith and his current employer have continued to make contributions to. Three of the four workplace pensions were established prior to the marriage, with a mixture of pre- and post-marriage contributions.
The current SIPP provider will have information on the amounts transferred in, but for the three schemes which weren’t wholly attributable to the matrimonial period, it is very unlikely it would be possible to go back to the ceding providers and get valuations as at the date of marriage. Even if you could get this information, how much growth in the fund is attributable to these pre-marriage assets, and how much on contributions post-wedlock?
Meanwhile Mrs Smith has a small pension of her own, which has both pre- and post-marriage contributions and will face similar difficulties in being apportioned appropriately.
If this bill ends up as law, it looks as though there will be no option of using a pension sharing order on any pre-marriage pension rights (whatever they are estimated to be), even as a method of offsetting against other assets.
I’ll be keeping an eye on this one as it edges its way through Parliament, as dealing with pensions on divorce could potentially get a bit trickier.