One of the greatest impediments to an ‘amicable’ divorce is the sheer complexity of the issues surrounding pensions.  As the title suggests, many are wholly incomparable.  Consequently clients need clear sighted advice and the lawyers need to co-operate in order that both parties can get to a position where they can at least make an informed decision.

The most obvious trap that is waiting for both parties is the cash equivalent value of say the husband’s and the wife’s pensions.  They may have definite figures attributed to them and therefore the temptation is to offset one against the other.  That could be a very serious mistake.

In the first instance public sector pensions do not have a ‘cash fund’.  It is therefore wholly impossible to compare these to private sector pensions.  Although a figure is attributed to them it is an entirely ‘notional’ figure based upon certain assumptions.  They are underwritten by the Treasury (ie paid from taxation) and do not vary with the fluctuations in the markets and are consequently guaranteed.  Such pensions are not available in the private sector or we would all purchase one.

How do you divide these?

Quite simply by employing a pension actuary to calculate how to equalise pension incomes on retirement.  This will frequently lead to equality of incomes being achieved by a wholly unequal transfer of cash equivalent values.

What if you do not have a Public Sector Pension?

Defined Benefit or Defined Contribution?

You may alternatively have one of two completely different types of pension.  These maybe either a defined benefit or defined contribution plan.  They may have identical values “on paper” but be completely different in reality because one is guaranteed by the employer and the other fluctuates with the stock market.

Complicated?  

It certainly is.

However, if parties contemplating a divorce at least recognise the difficulty and do not argue a point they are doomed to lose, we can as with all attempts to reach a settlement – enhance our chances and agree on how to get around it at the outset.

Clearly a Court should be the last forum in which to resolve such a dispute.  How the values are calculated has nothing to do with “right or wrong”, “fair or unfair”.  The lawyers need to “collaborate” to put the parties in a position where they can make informed decisions.  For many, the Collaborative legal process is tailor made to achieve that end.

First published on 23 May 2013 in 'Business News Weekly' within the West Sussex County Times.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.