Financial break-up

PENSION SHARING – 1 December 2000

According to newspaper reports last week, the rich and unhappily married are beating a path to lawyers' doors in the hope of being able to push a divorce through before 1 December. This is when the new provisions relating to pension sharing, as contained in the Matrimonial Causes Act 1973 amended by the Welfare Reform and Pensions Act 1999, come into force.

The new legislation represents a major social change and overrides existing pension scheme rules and trust deeds. It requires pension providers to incorporate sharing provisions into the rules of existing approved schemes when those rules are next updated.

New schemes seeking approval have to include the pension sharing provisions. The new legislation requires the pension provider to disclose specified information on request and within a specified time limit. For the ex-spouse, pension sharing is likely to provide a much fairer, tidier and more certain result than earmarking.

Pension sharing will supplement but not replace earmarking, which was introduced by the Pensions Act 1995. But for all divorce petitions issued on or after 1 December 2000, a pension sharing order is likely to be the more attractive option to the applicant, although perhaps not to the respondent of a claim for ancillary relief.

The existence of pension sharing does not mean that pension sharing will occur in every divorce, and sharing does not necessarily mean a 50:50 split.

In England and Wales it will be necessary to have a court order to achieve pension sharing. In Scotland, pension sharing may be achieved by court order or by the parties reaching a "qualifying agreement".

A pension sharing order will give an ex-spouse immediate rights to act in respect of the proportion of pension given to them. An earmarking order gives no immediate rights to the ex-spouse; it requires the pension provider to pay an amount from pension benefits if and when they eventually come into payment.

The rights created for the ex-spouse under pension sharing are known as the "pension credit" and the rights of the member, which are cancelled by sharing, are known as the "pension debit".

The pension credit will be given either by way of an internal transfer with the ex-spouse becoming a member of the scheme, or by way of an external transfer through which the benefits are transferred to another scheme on behalf of the ex-spouse. The pension provider will be required to offer the ex-spouse the choice of an external transfer, but not, in most circumstances, an internal transfer. If the ex-spouse fails to exercise their choice of transfer, or chooses an external transfer but fails to nominate a scheme willing and able to accept it, the pension provider can impose a choice on the ex-spouse and nominate an external transferee.

Only one pension sharing order or earmarking order can be made against any one pension in any one divorce, although the serial divorcee should be aware that the same pension could be subject to further orders in subsequent divorces. However, a pension that has been earmarked in an earlier divorce cannot be shared in a later divorce or vice versa.

Cohabitation – how to prove it to the court

Kimber v Kimber [2000] 1 FLR 383

The parties were divorced. By a consent order of November 1998, H was ordered to pay periodical payments to W until her remarriage, or until she had been cohabiting with another person for more than three months.

W ran a bed and breakfast. A man, L, moved into the bed and breakfast in December 1998, having met W in September 1998. W and L began an intimate relationship and L proposed marriage on Christmas Eve of that year and was accepted. W wore a ring given by L.

In early January 1999, L went back to his home in the US. Later that month, W briefly visited L's home to meet his family. In February 1999, L visited W in England for a few days and in March 1999, L came back to live in England.

In April 1999, H told W he was not going to pay her any more periodical payments because she was cohabiting, but W said: "I run a guest house. You will never prove it."

W acted very quickly. She arranged for L to become a tenant of a friend of hers. However, L spent some nights with W and helped her with her business, the household, and care of her child. W denied cohabitation and that she was engaged to L and, in November 1999, she issued a judgment summons for six months' arrears of maintenance.

The case was held on the facts that W and L were engaged and that they had been cohabiting since March 1999 when L returned to England intending to remain. H was not liable to pay maintenance after May 1999.

This case provides a very useful checklist of factors that may be relied on to establish cohabitation. Most practitioners will be all too familiar with the ex-husband turned over-enthusiastic private detective with reams of paper detailing sightings of the boyfriend and/or the boyfriend's car at the wife's home at all hours of the day and night. Such ex-husbands rarely take kindly to advice about the difficulties of proving cohabitation when denied by the wife, especially when she can claim that she has emerged well from an investigation by the DSS (invariably following a tip-off by the aggrieved ex-husband). But this case may bring joy to the heart of such an ex-husband, even though it may not diminish his relentless determination to operate as a sleuth.

Watch out for: decision of the House of Lords in White v White

H and W were farmers working in partnership. Theirs had been a very long marriage.

The Court of Appeal held that where spouses were in business together, the starting point of their settlement ought to be their respective financial position at the end of their business relationship. The first fundamental issue in this case was to determine what was the financial worth, broadly assessed of each of the parties on the immediate dissolution of the farming partnership. It was then the duty of the court to consider whether to exercise its powers under section 23-24a of the Matrimonial Causes Act 1973, having regard to all the circumstances in section 25, so as to increase or decrease each party's share of the assets.

The Court of Appeal decision is interesting and, to many practitioners, surprising. The contention that partnership principles might be not only the starting point, but also the finishing point, of a financial dispute between divorcing couples was radical and unexpected. It remains to be seen whether the House of Lords will approach the case in the same way.

Whatever their lordships' decision, it is expected to cover a number of important aspects of matrimonial finance of general application. The decision is likely to be of great significance to practitioners and commentators alike, not least because it is rare for the House of Lords to pronounce on section 25 of the Matrimonial Causes Act 1973.

Janet Wadicor is a barrister at One King's Bench Walk.