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How International Pensions Are Divided Upon Divorce

Research has confirmed what most of us already knew – following a divorce, women are more likely to lose out on pension-generated wealth than men, putting them at risk of low living standards in later life. For high-net-worth (HNW) couples, pensions are often located abroad and unless you have an experienced international family law Solicitor advising you, the overseas-based pension could fail to be included in the financial settlement.

Debora Price, the co-author of the Pensions and Divorce: Exploratory Analysis of Quantitative Data report and Professor of Social Gerontology at the University of Manchester commented in The Guardian:

“Divorce is a very emotional time for couples. It is especially difficult for them to think about pensions and often, the person with the larger pension – almost always the husband – does not want their pension to be shared as an asset in divorce.

“Women are often very focused on keeping their homes for themselves and the children and are often prepared to give up quite a lot to secure that.”

In this article, we explain how international pensions are dealt with in divorce financial settlement proceedings. However, before covering international pensions, below is a quick guide to how UK pensions are handled.

How pensions rights are divided in a divorce

When a couple divorce there are several options for dividing pensions:

Pension sharing

A Pension Sharing Order provides one spouse with a percentage share (referred to as a pension credit) of their ex-spouse’s pension pot. The pension credit can be assigned to an existing or new pension scheme. This option provides for a clean break concerning pensions.

Pension offsetting

One party retains their entire pension in exchange for other assets such as the family home. If the pension rights are worth less than the offsetting asset, the party receiving the pension under the financial settlement can relinquish the equivalent value of the property.

Pension attachment (formally known as pension earmarking)

In this scenario, the Court will make a Pension Attachment Order. This will provide for a portion of one party’s pension to be set aside for their ex-spouse. The ex-spouse will receive their percentage when the pension starts being paid out.

This option comes with the risk that if the pension holder dies before the pension pays out, the receiving spouse may never receive their percentage of the pension fund.

Applying UK pension sharing options to pension rights-based abroad

In Goyal v Goyal [2016] EWFC 50 (Fam), The Hon. Mr Justice Mostyn adopted the approach that pension sharing under section 24B of the Matrimonial Causes Act 1973 is not available for foreign pensions unless there is compelling evidence that a pension sharing order would be implemented in the overseas jurisdiction. Therefore, if international pension rights make up a considerable portion of the financial assets in a divorce, the jurisdiction where the divorce and financial remedy proceedings are heard will be crucially important.

Pension attachment orders, either lump sum or periodical, are sometimes enforceable in foreign jurisdictions. However, they are rarely used as a solution when dividing foreign pensions due to significant limitations, such as the Court not being able to direct the pension holder to retire at a set time, and the uncertainty surrounding pension attachment orders because they can be varied by the Court.

The financial remedies when sharing internationally based pension rights

The first thing your international divorce solicitor will do is seek legal advice in the jurisdiction the pension rights are located. They will ascertain whether the pension provider would consent to implement a pension sharing or pension attachment order made by an English Court. If the answer is negative, the option of whether an equivalent local order could be made and enforced will be explored.

Other solutions include:

Transferring the international pension to an English pension (this would be subject to the consent of the pension provider and the laws of the country where the pension is held).

Offsetting the pension against other assets.

Applying for an order under the Matrimonial and Family Proceedings Act 1984, Part III (financial relief in England and Wales after an overseas divorce). To qualify to apply for a Part III order one of the following must apply:

Either party must be domiciled in England and Wales on the date of the application or the foreign divorce.

The applicant must be habitually resident in England and Wales throughout the period of one year ending with the date of the application for leave or the foreign divorce.

The respondent must be a resident in England and Wales on the date of application.

Transferring (part of) the English pension to an overseas pension arrangement, against which the overseas order/agreement would be enforceable or by taking advantage of the pension freedoms

created by the Taxation of Pensions Act 2014 (where possible and subject to consideration of the tax consequences).

Summing up

As illustrated above, dividing an internationally based pension in a divorce financial settlement is a complex procedure that should be managed by an experienced solicitor with experience in dealing with complex cases. Although reaching a satisfactory solution may be difficult, it is certainly not impossible. With the right advice and representation, you can ensure you do not miss out on international pension rights that can provide you with a comfortable retirement in the future.

Edwards Family Law is a niche London-based firm specialising in complex and high-net-worth divorce and international family law. To find out more about dividing international pensions upon divorce, please phone +44 (0)20 3983 1818.