A disturbing report published by Cardiff University in 2014 concluded that pension sharing in divorce was an underused tool and the complexities of pensions tended to deter both practitioners and their clients from using the court’s powers to maximum advantage.
Specialist Financial Remedy Solicitors will always consider whether there should be expert pension evidence from an Actuary or Financial Advisor, whether on an informal or formal basis. It has for some time been the practice that in a long marriage, solicitors will instruct Pension Experts to analyse pension benefits and calculate the percentage Pension Sharing Orders that would be needed to achieve equality of income at retirement age. That is often regarded as the fairest outcome in sharing a pension entitlement that might have built up over many years of marriage when one party was earning and the other at home looking after the house and bringing up children.
A recent case – heard in Bristol by His Honour Judge Wildblood – at first glance appears to have discredited that approach. The case of M v M heard in 2015 involved a husband who was 70 years of age and a wife who was 57. They had been married for 22 years and separated for seven years by the time the case came to court. The husband had seven pensions with a total cash equivalent value of approximately £850,000. The wife had three pensions with total cash equivalent values of approximately £170,000.
An analysis of how the pensions should be shared was complicated by the fact that the wife was suffering from ovarian cancer and there were various medical reports about her life expectancy. In his judgement, His Honour Judge Wildblood indicated that for somebody to have a limited non certain life expectancy is not particularly unusual. In addition, although some commentators have interpreted the Judge’s decision as disapproving of sharing pensions based on equalising income, rather than simply adding together and then dividing the capital values in fact the Judge said “I accept that it is very difficult and unsatisfactory to achieve a fair result that is based only on equalised pension income”. He explained that there are many factors that would affect income including life expectancy, how the sums might be invested, and in particular whether they are invested in a way that means there is nothing left from the pension fund to pass on to the next generation on death.
In summary the Judge decided that on the particular facts of this case pension to look at a fair division of the cash equivalent values and then to consider the income effect and whether that needed adjustment, both in terms of fairness but with a particular reference to need. He described an analysis of the equalisations of income as being wrong and utterly speculative in this case but that the income consequences ‘remained a useful cross check’.
Contrary to some interpretations therefore, this case is not a blanket authority that it is inappropriate or wrong to share pensions with reference to equalising income. Another important factor that affected this particular decision was that the husband argued that 20% of his pension funds had been accrued before marriage – the Judge decided that it would not be appropriate to discount the cash equivalent values by the sum argued by the husband since that would leave an unfair result. He divided the pensions as to 55% to the husband and 45% to the wife but again cross checked this against the likely incomes that both would have from those capital figures at retirement age.
In passing, the Judge commented that a report by an Independent Financial Advisor had been unhelpful and inaccurate. The case therefore emphasises not only the importance of clear thinking about sharing pensions but also making sure that any expert evidence is equally clear and intelligible.
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