It is not unusual for just one of the parties to a marriage to build up a substantial retirement fund, which is often the second largest asset after the matrimonial home. It is therefore a matter of some importance to the other party, where there is a proposed dissolution of the marriage, to obtain expert divorce information from a specialist solicitor as soon as possible and in particular to consider their divorce pension rights. The relevant legislation is mainly to be found in the Matrimonial Causes Act 1973, the Pensions Act 1995 and the Welfare Reform and Pensions Act 1999. In the event of divorce there are currently three ways of sharing the value of a retirement fund:-
1. Under section 25 of the Matrimonial Causes Act 1973 the courts are able to take the value of a retirement fund into account when dividing up the matrimonial assets between the parties. Whilst the fund is often left untouched the other party will receive benefits in lieu of their share of the fund from the other matrimonial assets. Under the statute there is no hard and fast formula for working out divorce pension rights or what share goes to each spouse and whilst there is some divorce information in the statute as to the things that the court should consider when making their assessment which includes present and future needs, resources, earning capacity, age, marriage duration and the contributions of each partner to the family finances, the court is left to give a common sense approach to the actual distribution of the matrimonial assets upon divorce or separation. The court is entitled to take into account all assets no matter where they came from however certain assets may be treated differently from others and the effective value of a pension fund may well not be split evenly between the parties. In all cases the court is required to consider whether or not it is possible to arrange the financial matters in such a way that a clean break can be achieved whereby neither party need have any contact with each other in the future. Dividing the assets in such a way as to satisfy the other parties divorce pension rights by transfer of equivalent monetary value to enable the original policy holder to retain all of the fund may provide the basis for a clean break.
2. The Pensions Act 1995 enabled the courts to order that a portion of the fund or any lump sum payment from the fund, be paid to both spouses on the retirement of the fund holder. This type of arrangement is not without risk as the death of the holder would preclude the other partner from receiving benefits and this type of arrangement does not lend itself to a clean break which the courts attempt to achieve where possible.
3. The Welfare Reform and Pensions Act 1999 introduced a new concept whereby the court can order a provider to split a pension to provide a separate, independent fund for each party. This new arrangement ensures a clean break and gives the independence of when to take the pension and removes the risk of loss on the death of the original holder.
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