Pensions & Divorce
After the family home, sometimes the most valuable asset which a separating couple/civil partners have is often a pension scheme.
Nowadays, the court’s in Ireland have the power to treat a pension as an asset of the separating couple/civil partners and can therefore order that it be divided into whatever share it considers suitable.
Pension Adjustment Order (‘PAO’)
Such a court order is known as a pension adjustment order. For example, if one spouse has a significant pension and the other spouse who worked in the home has no pension accumulated over the years, the court can order that part of the spouse’s pension be paid to the other spouse or to a dependent child. The judge can decide how much of the pension should be designated. The effect of such an order is that the designated part of the pension remains in a pension scheme but is payable to a spouse and children when the other spouse reaches pension age or dies.
Types of Pension Adjustment Orders
A pension scheme can provide different types of benefits, so therefore for the purposes of PAOs these benefits are divided into two types of benefits – known as contingent benefits and retirement benefits.
- Contingent benefits – refers to death in service benefits under a pension scheme.
- Retirement benefits – refers to all the other benefits payable under the pension scheme.
A pension scheme member may be eligible for one or both types of these benefits mentioned above. However, each type of benefit must be applied for separately under different PAOs.
Significantly, a PAO on contingent benefits can only be made up to 1-year after a divorce or legal separation has been granted; and the PAO will cease if the member spouse leaves the relevant employment. It is important to note however that a PAO on retirement benefits can be made at any time.
Full Disclosure of Financial Resources – Pensions Act 1990
The court will consider all the financial resources and assets (e.g. home, bank accounts, savings etc.) available before making a final decision on the benefit-split contained within the pension adjustment order. Before a court grants a decree of judicial separation, divorce or dissolution each spouse/civil partner should have fully revealed all the financial resources to the other spouse/civil partner.
This includes full details of any pension which a spouse/civil partner may have.
If the spouse/civil partner refuses to disclose the details of the pensions that they have in-place, the other spouse/civil partner can seek this information directly from the trustees of the pension scheme under the provisions Pensions Act 1990.
Where the court does not make a pension adjustment order, it may consider the value of the pension and reflect this when making other financial orders.
Pension Trustees & Adjustments
When a pension adjustment order is granted by a court it is served on the trustees of the spouse’s/civil partner’s pension scheme, who will then make the necessary adjustments to the provisions of the scheme in relation to that member.
The Court decides the level of benefit to be made to the non-member spouse and this is worked out by calculating a ‘relevant period’ and the ‘relevant percentage’.
- Relevant period – is the period during which the benefits were earned i.e. start date to end date and it cannot extend beyond the date of the decree of divorce or separation
- Relevant percentage – the percentage of the benefit to be considered that is earned during the relevant period
As you can see from the details contained within this short article, pensions can be split and divided in various ways. Pensions and PAO’s are particularly complex areas and specialist advice must always be sought.
Gerard O’Brien LL.B LL.M CFP® QFA is a Certified Financial Planner and the Owner of Heritage Wealth Management, a Financial Planning practice based at 27 Cook Street, Cork. For more information, contact Gerard at firstname.lastname@example.org www.heritagewealth.ie
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