A recent court decision has determined the correct interpretation of regulations relating to the basis on which pensions are to be valued for the purposes of divorce proceedings, and the formula to be applied in circumstances where the pension value has to be apportioned to reflect the fact the pension may have been in existence both before and during the marriage.
Amanda Masson, Partner in our family law team said "This decision endorses the view taken by many family lawyers about the fairest way to value pensions for the purposes of negotiating agreements about the finances on separation or divorce. Pensions are often very valuable assets to be accounted for on divorce, and this case will hopefully assist in ensuring that only that value which is properly attributable to the contributions or income of the pension holder during the marriage is taken into account."
For many years there has been a debate over the correct approach to the interpretation of the apportionment formula. That requires the value of the pension at the date the parties separate or commence divorce proceedings to be adjusted having regard to (i) the period of membership within the pension scheme from the date of its commencement to the "relevant date" (as defined in the 1985 Act), known in the formula as "C" and (ii) the period of "C" which falls between the date of marriage and the "relevant date", known in the formula as "B". No definition is given in the regulation of "period of membership", "membership" or "member", albeit the regulations as a whole do recognise that there are differing types of membership.
This caused headaches for family lawyers and, no doubt, confusion and anxiety for clients.
The primary issue was the correct approach to be taken to the apportionment of the pursuer's pension. The dispute related to the interpretation of the legislation, resulting in different calculations of the value of the pension. The difference was significant, resulting in a difference of almost Â£120,000.
The pursuer in this case had only been an active member in his pension for four months after he married; albeit his marriage lasted a further 25 years, the bulk of its value had clearly accrued during his employment prior to marriage. He was a pensioner member right up to the point he separated, but he had added no value to the pension. Sheriff Holligan, at Edinburgh Sheriff Court upheld his pursuer's position .
This decision endorses the view held by most family law specialists and financial advisers about the fairest way of interpreting the legislation when it comes to valuation of pensions for divorce purposes. Specialist advice is essential given that pensions are often a significant asset, and given the potential for the method of valuation to deliver vastly different calculations, as this case demonstrates. Where complex assets are involved, expert legal advice is essential.