Legal Matters: Breakdown of a Marriage or Civil Partnership: Dividing the Pensions

Cassandra Worton, Partner with Shacklocks LLP and a member of the Society of Trust and Estate Practitioners, explains some of the mystery behind Trusts.

You’ve been through a difficult time. The divorce has been finalised and financial matters have been resolved by way of a Court Order. You’re ready to move on but the Order hasn’t been implemented yet, so what’s next?

70 years later the trust is still providing that accommodation.

Making a Will is a serious business. It is a time which gives many people cause to stop and think about how they want to be remembered when they are gone.

Trusts are a very well established part of English law, but are generally not available in many European countries. So what are they, and how did they come about?

When a marriage or a civil partnership breaks down, consideration needs to be given to how the assets of the union are to be divided. Assets can include the home, savings, cars and other valuables but also pensions.

The general view is that divorcing couples should be able to organise their future lives without fear of their divorce settlement being re-opened.

The difficulty is that the CETV for one scheme might produce completely different pension benefits to the CETV in another scheme. You might share a particular pension equally but the reality in terms of what you might each receive in your pocket could be significantly different. The court is generally concerned about the effect of a pension sharing order, especially when people might have been together for a long time.

The CETV provided by a pension scheme might not be a true representation of the value of that pension. In some cases, especially some public sector pensions, the CETV provided can significantly understate the true worth of a pension.

Where you own a house together there may be an Order for Sale. It may be an immediate sale, or a deferred sale where the house will go on the market when a child reaches a certain milestone. Your ex may be given a period of time to buy out your interest in the house and release you from your mortgage obligations, failing which there will be a sale.

Another of the trusts we look after was set up by a client who wanted to help people with particular medical conditions. Her kindness has enabled her trustees to provide financial support to a gifted young musician who has experienced a number of health issues that have interfered with her education, to enable that child to be educated in the most appropriate environment.

Indeed the pensions can be the most valuable asset and care has to be exercised in how they are treated and how they are divided. Usually, pensions are dealt with in one of the following ways: www.shacklocks.co.uk

Many people are attracted by the idea of doing something to help others less fortunate than themselves after they pass away, particularly if their family are adequately provided for or if they have no close family. Whilst some still like the idea of supporting major national charities, there are many who prefer to benefit more local causes or causes close to their heart, possibly where they have had a personal involvement or received support during their lifetime.

Put as simply as possible, a Trust will arise where a person transfers property or assets into the name of their chosen Trustees, for the Trustees to hold that property or those assets for certain purposes and on certain terms, for the benefit of specific persons or a group of people.

1. Pension sharing. This is where one pension is divided to create essentially two pensions, a reduced pension for the member of the pension scheme and a new pension for the other person.

Applications to set aside the Court Order can only be made in limited circumstances. These include non-disclosure of material evidence which resulted in the court granting an Order substantially different from that it would have made if this evidence was known. Orders can be set aside where there is fraud (one party has deliberately mispresented their assets). In cases of mistake the relevant fact exists at the time the Order is made but these are unknown to the parties. Strict conditions must be fulfilled before a court will set aside an Order in these circumstances.

A Charitable Trust can be set up either during your lifetime with savings and investments built up already, or alternatively through a specially prepared Will that will only take effect following your death and will therefore not deprive you of capital or income during your lifetime.

There are obviously many different pension schemes in existence. Each will probably be different to the next. It is very important that you receive the right advice and that the true value of each pension is understood and shared fairly. Often it is necessary to involve other experts, for example pension actuaries, who will produce comprehensive reports to assist in the division of pension assets. The information given above is necessarily general and cannot be relied upon in any particular case.

To better understand Trusts we can take a look back to the times of the Crusades. Trusts first began to take shape in medieval England when men were travelling abroad to join the Crusades. They would transfer their property to a trusted friend for them to look after, manage and protect until their return, which may not be for many years. The moral obligation imposed on the friend is one of the earliest forms of a Trust, which over the centuries has become embedded in our legal system.

Whilst the idea that someone travelling abroad may leave their property in Trust to be managed whilst they are away is still very useful today, Trusts may be used closer to home to protect and manage property or money in other circumstances too. For example, a parent may set up a Trust in their lifetime or through their Will for a child, or for an adult son or daughter who is not able to manage their own affairs perhaps because of disability or mental capacity issues. A married person may provide in their Will for their surviving spouse to have a life interest in their half of the family home thereby protecting that half of the home for the next generation. A Trust may be used where someone receives damages as a result of a personal injury or clinical negligence claim. A couple may set up a Trust to keep their family assets in the bloodline in case of changes in family and marital arrangements which may take the assets out of the family, or someone with a second family may set up a Trust to make special arrangements for their two families. A person with Charitable intentions may set up a Trust in their lifetime or on death for the benefit of those who they particularly wish to help in the future, and by doing so leave a lasting legacy: many of the charities we see now may have been set up in this way. These are all types of Trust.

2. Pension attachment. This is where a court makes an order directing that some of the pension payable to one person is paid to the other.

3. Offsetting. This is where the pensions are left untouched but the share of other assets are adjusted to take into account the value of pensions.

All this sounds great but if your ex won’t agree the sale price, is refusing to allow viewings or is actively putting buyers off and generally delaying matters, then you won’t get your fair share of the family assets without further action. An application for enforcement will need to be made to the Court which will include a claim for costs against your ex because of their failure to comply with the Court Order. If your ex refuses to sign the paperwork needed for a sale then the Court has the power to order the documents to be signed by another person on their behalf (usually a Judge).

Something that our team will discuss with clients in this situation is the idea of setting up their own charitable trust which can continue to provide support for charitable causes of their choosing long after they have passed away. Creating your own charity means that your trustees can provide support to those who need help most. There can be a great sense of satisfaction in knowing that your trustees will carry out your wishes after you have gone and that your name will be associated with such good deeds even after you are no longer around.

Before you even think about dealing with pensions you need to know their value. The starting point is often the provision of a Cash Equivalent Transfer Value (“CETV”). This needs to be provided in all cases. Whilst the CETV is important, further information is often needed in terms of benefit statements so that the full terms of the pension can be considered.

If we fast forward to the present day, the reasons to use a Trust are broadly the same as in medieval England; there are different types of Trusts and there are many different types of situations which may create Trusts. Trusts may be set up in a lifetime, or through a Will following death. Trusts may provide circumstances in which beneficiaries will become absolutely entitled to the Trust Fund, or they may provide flexibility by allowing for discretion to be exercised as to who should benefit.

Events which occur after the Order can be taken into account. These are known as Barder events. These events must invalidate the basis on which the Order was made, they must have occurred within a relatively short time, the application must be made promptly and third parties should not be prejudiced.

Our team at Shacklocks have a particular speciality in preparing arrangements of this kind and also of acting as professional trustees to enable wishes to be fulfilled and instructions to be followed.

If you are thinking of supporting charities through your Will or during your lifetime with a lump sum, why not talk to us about the different ways in which we can help you benefit those good causes, and how to make the most of the tax rules that enable a charitable cause to benefit.

At Shacklocks LLP we are committed to helping you to understand the true worth of pensions and to help you receive a fair financial settlement which will meet your needs. Shacklocks LLP family law team are currently offering all new clients an initial free half hour appointment. To find out more, contact Ben Stubbins and his team on 01773 822333 or email bens@shacklocks.co.uk.

Shacklocks LLP have been dealing with Trusts for many years, though not quite as far back as the Crusades! If you would like to know more about Trusts and how they may be of help in your circumstances contact Cassandra Worton or Richard Farmer at Shacklocks LLP on 01773 822333 or 01623 626141 or email cassandraw@shacklocks.co.uk or richardf@shacklocks.co.uk.

If any of the circumstances above apply to you, you need to act fast. Getting expert advice is crucial so you can move forwards with your life.

It is important to understand the difference between different pension types. Some pensions are pots of money which can sometimes be converted into cash (subject to tax). Other pensions simply give a person the right to receive an income from a particular date until their death.

At Shacklocks we have set up a number of charitable trusts over the 150 years or so we have been in business and we still look after those trusts today. One of the charitable trusts we look after, for example, was established by a will in the 1940’s to provide accommodation for elderly residents.

Maybe a little time has passed, and you find out that your ex did not fully disclose their financial circumstances (whether by accident or design) and you feel you received less out of the marriage than you should have. When can a done deal become undone?

Call us at Shacklocks to talk about how we can help you to help your favourite local causes.

Telephone Shacklocks on 0845 602 2344 or email me at marionv@shacklocks.co.uk.

Shacklocks LLP currently offer all new family clients an initial free half hour appointment. Why not take the opportunity of speaking to one of our experienced family lawyers to see how we can help you?

Contact us on 01773 822333 or email marcellak@shacklocks.co.uk