In Focus: When Clients' Plans Change  

How to prepare pension clients for divorce day

  • To be able to explain the different ways of pension sharing
  • To understand some of the legal changes in recent years
  • To learn different ways of assessing clients' needs in divorce
CPD
Approx.30min
How to prepare pension clients for divorce day
 Photo: Ron Lach via Pexels

Robin Williams is reported to have said the famous words: “Divorce is expensive. It’s ripping your heart out through your wallet.” 

Indeed, divorce has painful financial repercussions. Stretching finite family financial resources to meet two households rather than one and providing ongoing financial support for children and an ex-spouse (if appropriate) can be difficult.  

When considering what financial orders to make, the starting point for the court is to consider the factors set out at section 25 of the Matrimonial Causes Act 1973, which include the length of the marriage, the ages of the parties, their particular contributions, and the presence of children.

Pursuant to section 25(1) of the Matrimonial Causes Act 1973, the court’s “first consideration” is to the welfare of “a minor or any child of the family”.

There is also a statutory imperative to achieve a clean break where possible, which means no ongoing maintenance between spouses.

However, there are no set formulas for the division of capital, or the calculation of spousal maintenance or its duration.

As Lord Nichols stated in the landmark case of White v White [2000]: “Divorce creates many problems. One question always arises. It concerns how the property of the husband and wife should be divided.

“Everyone would accept that the outcome… should be fair.

"But… different minds can reach different conclusions on what fairness requires. Then fairness, like beauty, lies in the eye of the beholder.”

It can be a surprise to clients, particularly international clients, to discover that the courts of England and Wales are a discretionary jurisdiction when it comes to financial awards on divorce. 

In England, unlike many of our European counterparts, the bride and groom do not elect to live within a property 'regime' at the point of marriage with rules that govern whether property should be pooled (community of property) or kept separate (separation of property).

Neither are pre-nuptial agreements automatically enforceable and determinative of outcome in the event of divorce. It is not possible to oust the jurisdiction of the court definitively or to contract out. 

Since White v White, the courts no longer hold as their key objective the need to meet the ‘reasonable requirements’ of the financially weaker spouse (often, but not always, a woman).

Instead, a proposed award must be fair when held up against the 'yardstick of equality’, and this applies irrespective of whether they are the financial breadwinner or homemaker.

Fairness requires a consideration of the parties’ respective needs, including whether either party should be compensated for economic disadvantage that the marriage has created, and by reference to the principle of equality in sharing in the fruits of the marriage.

As a starting point, the courts will typically prescribe an equal division of the assets generated during the marriage, unless needs dictate otherwise.