What can happen to A Pension following the breakdown of a relationship due to Judicial Separation, Divorce or Dissolution?
Following the introduction various Family Law Act’s and subsequently Divorce in Ireland in the mid 1990’s there was a significant change in how pensions could be managed following relationship breakdown, depending on your relationship type different rules can apply so it would be important to talk with your own legal advisors regarding your circumstances. In this article we will focus on marriage breakdown
The various legislation changes have resulted in specific court orders having to be sought and sometimes granted in relation to an individual’s private pension(s).
Remember pension arrangements like any other asset a person owns is essentially a Financial Assets and should be viewed as such in the event of a relationship breakdown.
In this article we will try and provide some guidance to the two potential parties that would be involved, those been the pension holder and their spouse. We also look to provide some additional guidance to individuals who in the past may have been granted a Court Order in their favour.
All pensions are accumulated in an individual’s sole name; a policy can never be co-owned with another person or entity.
So, the first party is the Pension Holder or Member Spouse
The second part is the Non-Pension Holder or Non-Member Spouse. (As the title indicates this is the spouse of the pension policyholder or scheme member.)
Why the apparent pension inequality?
We sometimes see circumstances when either spouse accumulates significant pension funds, either through their own savings habit or in conjunction with their employer via a company scheme.
The other spouse may not have the ability to accumulate similar pension savings as they may have taken time of work to look after young kids or their employer did not offer a pension scheme, or the plan was to share the proceeds of the “One” pension in retirement.
Due to this apparent inequality in pension provision, the person who appears to be at a financial retirement disadvantage can seek as part of their legal proceedings to seek to benefit from their soon to be ex-partners pension.
This is done in conjunction with their legal team, and they would seek a Pension Adjustment Order (PAO) from the courts which may give them proportionally ownership of all or part of the existing pension.
Things to note:
- A PAO will only be given for a specific time period i.e., the dates that both individuals were married, co-habiting or in a civil partnership to each other.
- The PAO will set out a specific percentage for each person, this can vary from 0% to 100% for the time period.
- Some people can think that an PAO provides a specific monetary value to be paid in the future, this is not the case.
- Unless the Non-Pension Holder Spouse arranges to assume control of the funds awarded by the court to them, their former spouse can give direction as the investment strategy for the funds. This can mean the funds awarded to them can be invested in a manner that the individual would not choose for themselves.
- The pension provider / company if a private pension or the scheme trustees if an employer arrangement have to be formally told of the court order, otherwise they will assume the funds all belong to the policyholder / member. (This final step can be missed by legal advisors)
What both parties should note in the event of relationship breakdown and a PAO is granted:
- Ensure that the correct details are recorded in the Court Order in relation to time period and percentage amount.
- Have the pension providers or scheme trustees note the PAO even if a 0% order is granted.
- If you are the Non Member Spouse consider moving the funds to an appropriate policy that you control and manage in conjunction with your personal advisor
- Seek guidance as you approach retirement, if the member spouse retains a large pension fund after the granting of a PAO which may incur a future tax bill, look to agree how this will be paid, the default position is that it could be shared between both parties.
What if you have an existing PAO from your former spouses Company Pension?
There have been significant changes to Pension Legislation in the past 2 years in Ireland, these changes are resulting in the closing of and replacement of schemes and the trustees that look after them.
If you have obtained a PAO in the past, arrange for the order to be noted by the trustees but never assumed personal control of the funds, we would be recommending that you once again contact the scheme trustees to ensure the PAO continues to be recorded.
While it should not occur, we are becoming aware of instances where scheme records are not being maintained to the expected standard and existing PAOs are not been recorded as schemes close or are altered.
A call to the scheme trustees or administrators now could ensure that any benefits that were awarded to you will be paid when due.
That the information contained in this article is based on our knowledge and understanding of the relevant legislation in May 2023 and may change in the future. We always recommend that you obtain personal and individual legal and financial advise for your own circumstances.