In many cases the pension rights of a divorcing couple are, after the matrimonial home, the biggest and most valuable asset. However, with ever increasing global mobility an inevitable consequence is that increasing numbers of foreign courts are hearing divorce proceedings where part of the matrimonial estate is an English pension scheme.
When a couple divorce in England & Wales the court is obliged to consider the cash equivalent value of pensions during ancillary (financial) proceedings. In an attempt to balance the distribution of assets the court may order that some or all of the pension assets are allocated between the parties, colloquially called ‘pension sharing’.
In many foreign jurisdictions similar considerations are undertaken by the domestic court however contrary to whatever local legal teams and judges may declare, English pension schemes can only recognise orders issued by an English court. This is not negotiable. Foreign courts do not have any jurisdiction over English pension schemes and even if an English pension scheme wanted to honour a foreign court order they are legally prohibited from doing so.
Does this mean the English pension falls into a black hole?
As with most legal matters the answer isn’t a simple ‘yes’ or ‘no’. In many cases a pension sharing order may be obtained but only when subject to the involvement of an appropriate UK court:
Offsetting: if resources permit this is by far the simplest, cheapest and least stressful option. The parties agree to offset some of the pension value in exchange for other assets: cash, investments, property etc. In this instance a legal undertaking* is prepared and signed to confirm that this settlement prohibits a pensions action in English courts.
If not too late consider withdrawing the divorce petition in the foreign jurisdiction and petition for divorce in the UK* to facilitate the automatic consideration of a pension sharing order. This is particularly useful where both parties have agreed how they would like the matrimonial estate to be shared.
Part III of the Matrimonial and Family Proceedings Act 1984* specify conditions in which an application may be made for a pension sharing order after the completion of foreign divorce proceedings. The qualification criteria for such an application may be problematic and inconvenient for some.
Applications made under Part III maybe consensual applications where both parties apply for the agreed pension share or contested applications (resulting in a trial). Schofield v Schofield is a frequently cited example of a contested case in which a German court acknowledged no jurisdiction over a British Army pension. However, following a Part III application, the former (German) wife won a share of the British soldier’s army pension.
The European Maintenance Regulation* (which applies in the UK irrespective of the other jurisdiction being in the European Union) may grant jurisdiction to an UK court to hear maintenance matters. In this context, the European legal concept of maintenance is far wider than the usual concept of periodic payments to a former spouse. Maintenance in this European context can apply to lump sums, property and pensions insomuch as the intention is they be used for maintenance rather than as part of the equitable distribution of an estate. However, as with Option 3, issues of ‘habitual residence’ can be inconvenient to overcome
Forum necessitatis* is an exceptional jurisdictional provision brought about by Article 7 of the aforementioned European Maintenance Regulations so that an English court may hear an application on an exceptional basis because no other court has jurisdiction and the applicant fails to satisfy the habitual residence test. However, one should remember that such an application may only be for maintenance and not for equitable division of the matrimonial estate’s capital.
*No action should be contemplated without first obtaining personal advice specific to your situation. The options as described above apply to the courts of England and Wales. Scotland and Northern Ireland have a slightly different legal framework. E. & O.E.
Paul Corner is a Chartered Financial Planner, award-winning university lecturer, adviser to the DWP’s Pensions Advisory Service and financial planning member of the ‘Resolution’ the Solicitor’s Family Law Association.Tax treatment and laws related to personal finances change on a regular basis. Any investments or financial products referred to are not endorsed, nor recommended. Discussion points raised in blog articles should not be acted upon without professional advice. E & O.E.
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