Pension Sharing Gap Post-Brexit – Part III Applications
24 March 2023
In the run up to 11pm on 31 December 2020, there was a desperate rush to issue divorce and financial proceedings so that parties could take advantage of the European regulations. Now, just over two years on (at the time of this article), we can clearly see the gaps that have appeared in the family court’s powers and reach in post-Brexit England and Wales.
Intriguingly, one of the worst gaps that have appeared does not affect divorces initiated in the English jurisdiction, but impacts on foreign divorces giving rise to the need for an English pension sharing order.
What have we lost?
Under the Maintenance Regulations, qualifying individuals could obtain a pension sharing order in England and Wales after a foreign divorce, even though the UK pension arrangement was the only connection with this country. This was termed the forum of necessity, as only the Courts of England and Wales could deal with this asset.
This was attractive to many because it allowed those parties with a foreign divorce to take advantage of the helpful power of the courts in England and Wales to transfer part of an English pension to them, with all the advantages and associated benefits of that pension scheme. The receiving spouse could then become a member of their ex-spouse’s scheme (internal transfer) or transfer that value into another arrangement they have in their own name (external transfer).
This meant that, if the foreign jurisdiction failed to adequately provide any or reasonable financial provision on divorce, an application could be made to appeal to the jurisdiction of the English courts for a pension sharing order where their spouse had a pension in England and Wales. In effect, this would circumvent unattractive jurisdictions and allow parties to have a ‘second bite of the cherry’ in some cases.
Equally, many financial agreements reached by consent in foreign jurisdictions would account for the jurisdiction of England and Wales being able to grant pension sharing orders over these assets.
Where are we now?
Post-Brexit, if a party to a foreign divorce seeks a pension sharing order from the Courts of England and Wales, they must turn their mind to Part III of the Matrimonial and Family Proceedings Act 1984.
Under this Act, parties need to show that the divorce was legally valid, they must not have remarried, and must satisfy jurisdictional criteria to show sufficient connection to England and Wales. With regard to the latter, this means that parties must satisfy one of the below:
- Either party must be domiciled in England and Wales at the time of the foreign divorce or at the time of Application (domicile is an English concept, and often is reflective of where you consider your true home to be or where you intend your true home to be); or,
- Either party must be habitually resident (primarily based) in England and Wales for 12 months before foreign divorce or 12 months before date of Application under Part III; or,
- Either party must have an interest (legal or beneficial) in a property in England and Wales that had been the matrimonial home (but in this case, the claim is limited to the value of the home).
This is much more limited than the forum of necessity, so many people are finding that they do not satisfy the jurisdictional criteria.
If you face a foreign divorce with an English pension sharing order and you will not satisfy the jurisdictional criteria to bring a Part III application, you will need to consider alternatives to a pension sharing order. Those alternatives could be:
1. Offsetting the pension
Is it possible to allow the member party to keep their pension and offset the value of them retaining that pension against another asset i.e. to compensate the other party for the value of that pension in the absence of a pension sharing order.
Specialist actuarial advice should always be obtained to undertake the appropriate offsetting calculation.
2. Porting the pension to a foreign provider
It is possible, with certain pension companies, to transfer the value of the pension to a provider in the jurisdiction where your divorce is being held so that your local court can make orders in relation to the pension. However, local legal advice and taxation advice must be obtained to inform you of the consequences and feasibility of such a transfer.
The starting point is always obtaining appropriate legal advice to explore your options and to do this at the earliest possible stage to avoid falling into the pension gap post-Brexit.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at March 2023.