When a marriage, civil partnership, or cohabiting relationship ends through judicial separation, divorce or dissolution, the court may divide assets between the former partners and any dependent children if this cannot be agreed amicably between the separating couple. This ensures that everyone is fairly provided for, and will attempt to equalise provision for children in both homes.
While the family home is often seen as the most valuable shared asset, pensions are also considered part of the financial picture and these can be extremely valuable. In many cases, if a reasonable offer is not made and accepted, the court can order that a pension be divided and this is known as a Pension Adjustment Order (PAO).
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What is a Pension Adjustment Order?
A Pension Adjustment Order is a court order that directs part of one partners pension to be allocated to their former spouse, civil partner, or dependent children (typically those under 18).
For example, if one partner has built up a substantial pension while the other – perhaps having taken on full-time care responsibilities for the family – has none, the court may order that a portion of the pension be shared. The pension is considered a mutual asset in this situation.
Pension sharing could involve:
- Direct payments to the other person or dependent children.
- Transferring part of the pension fund into a separate pension scheme in the other persons name.
If more than one pension scheme is involved, the court may issue separate orders for each.
Pension Adjustment Orders and Cohabiting Couples
It is also possible for courts to issue Pension Adjustment Orders for cohabiting couples, but the rules are different. It is very important to seek independent legal advice that relates to your unique situation, as you may be entitled to more than you first thought.
If a cohabiting relationship ends, a PAO may only be made in favour of the cohabitant, not dependent children.
To be considered a cohabiting couple under the law, you must:
- Have lived together in an intimate and committed relationship for at least 5 years, or
- For 2 years if you have dependent children together.
Cohabitants can be of the same or opposite sex, and intimacy does not necessarily mean a sexual relationship.
Cohabiting couples may also have rights related to property, child custody, maintenance and inheritance and qualifying for these rights depends on the length and nature of the relationship.
What the Court Considers
Before granting a judicial separation, divorce, or dissolution, the court requires full financial disclosure from both parties, including details of any pension entitlements.
The court will take into account:
- The total financial resources of each party.
- The needs and entitlements of both the adults and any children.
Even if a Pension Adjustment Order is not made, the court may still consider the value of a pension when making other financial decisions and the aim will be to equalise the financial positions of both parties.
If one party refuses to disclose pension details, the other party may request this information directly from the trustees of the pension scheme and your legal team can handle this for you.
After the Order is Granted
Once a PAO is granted, it must be served on the trustees of the pension scheme, who are responsible for enforcing the order.
Trustees operate under the terms of the pensions trust deed and rules and cannot make changes to benefit someone not covered by the scheme, even at the members request.
For example, a scheme may provide a survivors pension to a lawful spouse. If the pension member is separated but has not legally divorced and remarries or cohabits with someone new, the survivors pension may still be payable only to the legal spouse.
Separation agreements involving pensions may not be enforceable unless confirmed by a court order, and you should seek legal advice even if you are able to reach amicable agreement to ensure that your settlement is fair and final and to prevent difficulties arising in the future.
Because pensions are legally and financially complex, it is strongly suggested that you seek specialist advice on how they may be valued and divided to ensure that you receive a fair settlement. It may be necessary to employ an external expert to advise on the issue of pension division.
Applying for a Pension Adjustment Order
A Pension Adjustment Order can be made:
· At the time a court grants a decree of judicial separation, divorce, or dissolution.
· After the decree, by separate application from either party.
A divorce or separation is often a very stressful time and it is important to seek legal advice to ensure that your settlement is fair. Although it may be tempting to agree to a simple settlement to save initial costs and avoid animosity, this may lead to financial hardship in the future and you should seek advice from specialist financial experts to ensure that your financial interests and those of your children are protected.
Tracy Sumstad is a highly qualified and experienced Senior Financial Consultant with over 20 years of expertise in the Finance Sector. Tracy is well-equipped to provide comprehensive advice on financial planning and corporate solutions. Her focus lies in helping clients identify their unique values and goals, empowering them to make informed financial decisions that protect and enhance their wealth and success.
