Divorce is at its worst when it becomes acrimonious, undermines feelings of security and has the ability to dominate and adversely affect the ongoing lives of those involved. As such, any area of family law which increases the potential for the above needs examining.
The progression of family legislation
It is fair to say that various acts of parliament, including The Inheritance (Provision for Family and Dependents) Act 1975, the Children Act 1989 and The Marriage (Same Sex Couples) Act 2013 have gone some way to enhancing and protecting the interests of couples and children from all family types who are involved in relationship breakdown. However, there are still certain areas of divorce law that require better understanding and further development.
The division of pensions on divorce is certainly among the issues earmarked for improvement and the reasons are plain: next to property, pensions are usually the major asset in a marriage, yet they are often not fully considered when a couple seeks financial remedy on divorce.
There is often huge disparity in spousal pension wealth; the stay-at-home parent or ‘homemaker’ partner often having no pension at all or savings worth only a fraction of the value of the pot belonging to the main earner.
And it is not just the value of pensions at the time of divorce which is problematic. Women who have acted as the homemaker are likely to earn less post-divorce because of the years they have spent bringing up children, away from the employment market, and they are likely to find that the gender pay and pension gap opens and widens as the years develop, preventing them from accruing anything like the pension of their former spouse.
So, why is pension sharing a problem?
Currently, a situation exists whereby the outcomes in relation to pension sharing for divorcing couples are not predictable and are wholly inconsistent. This needs to change.
The problem affects both parties; on the one-hand many 'main earners' do not expect to ever have to share their pension and feel deeply affronted at the prospect. The 'home makers', on the other hand, don't always actively seek a split of this particular asset, although at the time they fail to consider fully how they will be able to maintain their lifestyle on a small pension with little to no savings.
In 2018, a report by the Chartered Insurance Institute (CII), entitled Risk, exposure and resilience to risk in Britain today, found that divorced women had less than a third of the pension wealth of divorced men and were far more likely to rely solely or largely on the state pension. They are, the report said, also much more likely to struggle in finding meaningful and well-paid employment following divorce.
The difficulties and inequities of the situation have, in certain cases, been exacerbated by the 2014 pension freedom reform, with some scheme members transferring their benefits to other types of plan or investment vehicle, sometimes opaquely, away from the scrutiny of former spouses.
It is therefore crucial that all divorcing parties, and the professionals who advise them during the financial settlement process, are able to gain a full and clear understanding of pension rights and obligations on divorce. Otherwise, the retirement dreams of a significant portion of society will be severely compromised.
Can legislators help the situation?
For too long now family law has compounded these inequities. Despite some evolutions in the law, it has failed to present consistency and clarity when it comes to the division of pensions. Of course, this could have occurred for two reasons: either the law has been unclear and inadequate or divorcing couples have been insufficiently aware of the law in relation to pensions on divorce.
There is some hope, however, that the situation will be addressed. A new guide on the subject – A Guide to the Treatment of Pensions on Divorce – aims to ensure that family judges, lawyers and pension specialists are all speaking the same language so they can foster fairer, less acrimonious and more consistent outcomes for divorcing parties engaged in the division of pensions.
Published by the Pension Advisory Group (PAG), the guide seeks to simplify the language and terminology of pensions, and to improve communication amongst the professionals who work in the field, across England & Wales. There are a number of key recommendations made in the report, alongside a list of essential action points for practitioners when handling divorce financial settlements.
In the forward, Sir Andrew McFarlane, President of the Family Division, welcomed the report and acknowledged the "tales" of "divergent approaches" used in different court centres which have "brought the integrity of the system into question". However, he endorses the report and commends all judges and practitioners to see its contents as "formal guidance" in financial remedy proceedings.
While the current document is acknowledged by the Chairs of the PAG, to be longer than they would have wished – testament, it would seem, to the current difficulties and complexities in this area – they express a hope that a shorter document will soon be made available for use by divorcing parties. Hopefully so, as it is long overdue and much needed in order to create an environment of equality for all divorcing parties.