The division of matrimonial property belonging to a married couple on separation or divorce is regulated by the Family Law (Scotland) Act 1985.
Matrimonial property is defined as all the property belonging to the parties or either of them at the relevant date (usually the date on which the parties ceased to cohabit) which was acquired by them or either of them (otherwise than by way of gift or succession from a third party) — (a) before the marriage for use by them as a family home or as furniture or plenishings for such home; or (b) during the marriage but before the relevant date.
Matrimonial property includes pension interests and there has been specific provision in the 1985 Act for pensions to be shared since 2000.
Despite this, we often come across cases where a separating couple will agree not to include pensions in the pot of matrimonial property which is to be divided between them.
The reasons for this are not always clear but it may be because pensions do not have immediate liquidity, in that most pension funds cannot be accessed currently until the member is at least 55 years old.
Therefore, the value of a pension claim seems less important, particularly amongst younger couples.
In other cases, the time and expense involved in investigating the value of a pension and agreeing a pension share is perceived to outweigh the benefits of doing so.
Valuations of most items of matrimonial property (e.g. houses, bank accounts and cars) can be produced in a matter of days.
A specific type of pension valuation, a Cash Equivalent Transfer Value (CETV) is required for the purposes of separation or divorce. There may be a cost to obtain the CETV and it may take a number of weeks to be produced.
Sometimes the input of a pension Actuary is advised or required.
Finally, some spouses regard a pension as their most valuable asset and will be resistant to any claim from the other spouse, making it difficult for the other spouse to pursue a claim without resort to Court action.
Agreeing to disregard your spouse’s pension from the matrimonial property pot is likely to be contrary to legal advice.
A pension is a tax efficient savings plan which will provide you with an income on retirement and the value of a good pension on retirement cannot be understated.
One of the reasons why pension sharing on divorce was introduced was because it was recognised that one spouse may accrue more in his or her pension fund than the other spouse during the marriage.
By sharing the value of both spouses’ pensions on separation or divorce, it means that one spouse is not disadvantaged by taking a career break to raise children.
Post separation, your change in circumstances may mean that you have less disposable income available to you to pay into a pension, therefore, if you are entitled to a share of your spouse’s pension, this should be given serious consideration.
If pensions are to be included in the matrimonial property pot, there are a number of legal principles and practical considerations which apply to pension sharing and strict legislative timescales to be met.
Therefore, it is essential to seek both independent legal and financial advice.
If a pension is to be shared, this will be effected by an agreed sum or percentage being transferred from one spouse’s pension into a pension in the name of the other spouse.
A pension share requires to be agreed in writing in a Minute of Agreement prior to divorce but will be implemented following divorce.
An alternative to pension sharing is “offsetting”. This means that there is no transfer of pension from one spouse to the other but one spouse may receive a greater share of another asset (e.g. the house) to take account of the value of the other spouse’s pension.
In practice, depending on a spouse’s financial circumstances, offsetting may be more beneficial than pension sharing but both require the value of the pension to be included in negotiations.
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