Pensions can make up a significant proportion of family assets and should be fully taken into account when financial matters are dealt with during a divorce. Where a couple with UK pensions divorce in England, the court can make various orders to deal them. Most commonly, a pension sharing order is made hiving off a portion of one party’s pension and giving it to the other. However, where there are pension assets overseas or a divorce overseas and pension assets in the UK, the situation is more complex. There are two angles that need to be considered:
- Can an overseas pension be shared in a divorce in England & Wales; and
- Can a UK pension be shared in an overseas divorce.
In this article, Hebe Thorne explores both.
Overseas pensions can never* be shared on divorce (*almost never)
As confirmed by Mostyn J in Goyal v Goyal [2016] EWFC 50 (Fam), just as a UK pension cannot be shared without an order from our court, the English court does not have jurisdiction to make pension sharing orders over offshore pensions - unless there is compelling evidence that a pension sharing order would be implemented in that country.
The problem that this creates is that the only way of dealing with a pension, which may have accrued during the marriage and be wholly matrimonial, is that offsetting is the only option – that is, giving the non-pension owning spouse more of the non-pension assets to compensate. That is fraught with difficulty both ways – the pension owning spouse may then end up with a disproportionate amount of assets in pensions and not be able to access them immediately, the other may not have any retirement provision, or there may simply not be enough to offset the value of the pension to generate the same income over their lifetime.
What are the options? First and foremost, it is essential to seek local advice in the jurisdiction where the pension is held. It is important to find out what could be done in that jurisdiction with the pension on divorce and whether they would accept and implement an English pension sharing order. The answer is likely to be no. Sarah Hoskinson, Partner and Head of our Family & Divorce Team, is Co-Chair of the Pension committee of the International Academy of Family Lawyers and is working on a large scale project to assimilate information from all over the world about how pensions are dealt with in that country. Whilst not a substitute for obtaining on the ground, fact specific advice, it will be a helpful steer as to what to expect in that country, in particular about what alternatives there are available to implement the overseas pension.
It may be that it is possible to obtain a local order which is equivalent to a pension sharing order. If that is the case, as set out in Goyal, it is important that any English final order includes an agreement that the parties will obtain a local order to implement the pension order agreed, and there will need to be undertakings that all parties will take all the necessary steps in that country to get that order. It is another process to undergo, with more time and costs, but there may be no other option for some.
In addition to offsetting, the other options as suggested by Mostyn J in Goyal are:
- a maintenance order (supported by injunctions for enforcement) to ensure pension monies are paid to the receiving spouse; or
- an order to vary a nuptial settlement relating to the pension (which is what was done before pension orders were possible). It is no longer possible to vary a nuptial settlement relating to a UK pension, but Goyal confirmed that, in principle, overseas pensions were likely to fall outside of this exception and therefore it would be possible to vary a nuptial settlement relating to one.
What about when the divorce is overseas but the pension is here?
We are regularly instructed to assist in these situations – for example where a US divorce has dealt with a UK pension and it now needs to be implemented. It is critical to consider this before the overseas divorce is concluded because, post Brexit, the only way that this can be done is using an application for financial provision after a foreign divorce (known as Part III claims – Part III of the Matrimonial and Family Proceedings Act 1984).
The difficult issue here is that in order to be able to use this route, the applicant has to meet the jurisdictional criteria – which is that they or the other party were domiciled in England and Wales at the time of the divorce or application, or habitually resident here for the preceding twelve months. There is another option relating to owning property, but this does not apply to pension cases. It is also necessary that the applicant has not remarried.
This is going to be a difficult hurdle where a pension accrued some years ago to some someone while working here who has then returned to their home jurisdiction. Many will fail on this point.
Where the criteria is satisfied, permission to apply needs to be obtained from the court, but where it is being done by consent (as is usually the case where it is to implement an order elsewhere), this can be done at the same time as submitting the application and order. If specialist English advice is not sought before the overseas divorce, it may be necessary to obtain amendments to those orders/documents and therefore it is always best to do this prior to finalisation of the overseas proceedings.
We advise on these issues regularly and recently Richard Handel, a Director in the team, gave evidence as an expert witness in a US divorce on this point.
Dealing with pensions in an international context is extremely complex and fraught with issues - advice should be taken at the earliest opportunity to avoid issues arising down the line. Our team are all specialists in pensions on divorce and are able to assist.
This article was written by Hebe Thorne.