European Commission Pensions and Divorce
When considering financial settlements as part of a divorce in England and Wales, the Family Court has wide-ranging powers to make orders in respect of the couple’s combined assets. Since December 2000, this has included pension sharing orders.
Pension sharing
Every pension will have a Cash Equivalent Value (CEV) – a specific value which is used for divorce purposes.
Pension sharing orders involve a percentage of one party’s pension CEV being deducted (the pension debit) and transferred to a pension scheme in the other party’s name (the pension credit).
Pension sharing orders can be applied to many different types of pensions, including final salary, defined benefit, defined contribution, the additional state pension (also known as SERPS or S2P) and the pension protection fund (PPF) – a statutory public organisation which was set up in order to protect individuals with an eligible defined benefit pension when an employer becomes insolvent.
The European Commission
One exception to this is a pension accrued through employment at the European Commission (EC). Headquartered in Brussels, the institution also has various delegations throughout the EU as well as other cities worldwide.
Over a 25 year career, an EC employee could accumulate a pension with a CEV of over €1,000,000. Even after a much shorter period, the benefits can be significant.
Unusually, the European Commission attributes only a notional CEV to an employee’s (or former employee’s) pension, resulting in this asset having no tangible value in a divorce. Instead, the European Commission provides only a guaranteed gross income at retirement which is ostensibly incapable of being shared with the other party (except under the most unusual of exceptions).
It follows that this anomaly has the potential to make an otherwise straightforward case necessarily complex.
One complicating factor might be the need to consider the impact of different income tax regimes, depending on where both parties now reside. The EC pension income is taxed in the country where the receiving party is resident.
Similarly, with the financially weaker party not being able to rely on a pension sharing order to meet their needs in retirement, it is possible that the court will necessarily need to make a spousal maintenance order - itself inconsistent with the Family Court’s duty to try to achieve a clean break, thereby placing uncertainty on both the paying party and the receiving party, each aware that spousal maintenance orders are variable throughout the duration of the term.
In today’s world, it is not unusual for a separating couple to relocate, potentially involving multiple jurisdictions. Consider a former EU employee now living in the US, whose former spouse has settled in England, where the divorce proceedings take place. This might involve an analysis of dual tax treaties between Belgium, England, and the US to calculate the net income due to the former EC employee, an element of which is then paid to the former spouse in maintenance.
This is a highly complex area of law which will only be relevant in a handful of cases. At Irwin Mitchell, we have a team of specialist family lawyers who can advise on cases involving pensions and who work alongside experts qualified to advise on other relevant factors, such as tax.
Visit our website for more information.
