The Scottish Courts now take pension rights into account when deciding financial settlements following a divorce. However the claimant spouse is not automatically granted a share of the accumulated pension rights of the other spouse on divorce. Instead, the claimant spouse often receives the proportion allocated to him or her if, and when, the other spouse begins to draw their pension.
In the current system, there are two options for adjusting pension rights on a divorce:
- The claimant spouse obtains a future attachment order or, in terms of the Pensions Act, a "deferred maintenance order" against the lump sum share of the ex-spouse's benefits, payable when he or she starts to draw benefits from his or her pension scheme. This system is more commonly known as "earmarking".
- The divorcing couple may reach mutual agreement for an immediate settlement by way of a lump sum. This is often the preferred option as it allows a "clean break". A lump sum cannot be ordered by the court and, if the claimant spouse's preference is for a future claim, then he or she may insist on that route.
There are a number of reasons why a lump sum settlement is preferable for divorcing couples. From the prospective pensioner's point of view, to be required to pay a substantial sum to a former spouse on retiring would badly affect his or her projected retirement income.
Under current legislation, the claimant spouse will have to wait for the scheme member to draw a pension before the benefits to which they are entitled are paid. In particularly acrimonious divorces, scheme members may deliberately delay drawing benefits for many years and there is nothing that the claimant spouse can do to call for an earlier payment.
If the claimant spouse dies before the member's pension scheme benefits become payable then his or her claim to those benefits die also and cannot be "left" to beneficiaries in a will.
Similarly, if the member of the pension scheme dies before drawing his or her pension then the claimant spouse loses all rights to the benefits. In practice, the majority of couples, where possible, prefer an immediate cash settlement.
The pension aspects of divorce are clearly a complex and expanding area and, most importantly to divorcing couples, often a very valuable aspect of divorce.
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.