Guide to the effect of separation/divorce on pension assets
In any family law case, the parties will generally focus on what happens the family home or other property assets. This is understandable given that the family home/property relates to here and now i.e. the needs of both parties to rehouse themselves and their children after the separation.
However, the reality is that in many cases the largest assets available to the parties are the pension assets owned by either or both of the parties.
The task of any Court in resolving any family law case and making a decision as to how the assets as to be divided is to make what amounts to ‘proper provision’ for both parties and the children of the marriage. This includes making orders in relation to the existing pension assets.
There are two types of pensions namely defined contribution pensions and defined benefit pensions.
A defined contribution pension scheme which would be the most common pension scheme (other than in public service pensions)is one where the level of the benefit payable on retirement is influenced by a number of factors including the amount of contributions which have been paid into the scheme, how well the investment strategy has worked in building up the value of the scheme and the fees and charges applied.
A defined benefit pension scheme on the other hand provides a defined amount of benefit to the pension holder on retirement. This amount is usually based on the years of service provided by the member and their earnings at retirement age.
When making an order in relation to pensions a court can make what is called a pension adjustment order and this is an order that adjusts or varies thus designating part of the benefits of a pension to the non-member spouse or dependent child.
The discretion afforded to a court is governed by the Family Law Act, 1995 in the case of court separations and the Family Law Divorce Act, 1996 in the case of divorce.
The pension adjustment order can deal with the benefits which relate to the payment made if a member spouse dies in service which are known as contingent benefits or the retirement benefits which are all other benefits payable under the scheme. It is important to note that a pension adjustment order which relates to a contingent benefit (death in service) must be made within one year of the date of the court separation or divorce.
It is also important to note that the benefit to the non-member spouse of a contingent benefit will be lost if the member spouse leaves the employment to which the contingent benefit related.
The cessation of employment by the member spouse will not however affect any orders made in relation to that member spouse’s retirement benefits.
It is important to note that in the case of retirement benefits the benefits can apply as follows:
- To the lump sum that is payable on retirement.
- To the annual pension payable to the member.
- To death in retirement benefits.
- In the case of public sector pensions to the spouses and children’s benefit.
It will not be a surprise after reading this article that it is extremely important to get advice in relation to the benefits attaching to a pension scheme when separating or divorcing. A non-member spouse will usually be entitled to a copy of the pension rules or scheme booklet as well as an up to date pension benefit statement.
If you have any queries in relation to the issues covered by this article or any family law matter please do not hesitate to contact Brendan Dillon or Lorna McArdle on 01 296 0666.