Divorce divides the pension: Court ruling precedes report on splitting the benefits

A WIFE who is getting divorced has been given the right to a share in her husband's pension scheme in a judgment that shatters the belief that pension schemes are inviolate.

Later this month a working party that has been looking into splitting pensions on divorce is due to deliver its report. But this appears to have been overtaken by the decision of Mr Justice Ewbank in the High Court. The ruling is still to be tested in the Court of Appeal.

In the case of BvB, a couple in their fifties were getting divorced after 12 years of marriage. The husband had a controlling interest in a substantial, family-run building firm, where the wife had worked as company secretary.

A self-administered pension scheme was set up for the directors, after the marriage, with funds managed by Allied Dunbar and Equitable Life. The trustees were the husband, his accountant and his sister. It had surplus funds over the amount needed to fulfil the pension entitlements.

The judge ruled that the wife was entitled to a separate pension in her own right payable as a monthly income starting immediately as a past employee, and also a right to a pension from a later date to replace her lost right to a widow's pension.

Martin Pointer, the barrister acting for Mrs B, said: 'The point I regard as important was that the scheme was set up after marriage. That is quite important in order for the courts to get the powers over a 'post-nuptial settlement'.'

He added that it could also be argued that someone joining an established company scheme, say at BP or ICI, after their marriage could be said to be settling the pension benefits of the scheme on their spouse even though the scheme was long established.

'The courts have taken the view in the past that judges don't have the power to touch pension schemes. But the courts have long strived to give the wife a fairer share,' he said.

Norman Russell, partner at Paisners, the solicitors acting for Mrs B, said that as there was a pension surplus it allowed the judge to award the wife more than otherwise, but it was not a crucial element of the decision.

Judith Bell, of solicitors Girlings in Canterbury, acting for the husband said she did not want to comment on the case ahead of any appeal.

Robin Ellison of pensions consultants Ellison Westhrop and a member of the Pensions Management Institute (PMI) working party on pensions and divorce said he did not believe the judgment would relate to 99 per cent of couples as it relied on principles established to apply to family trusts that could be extended to cover small family pension schemes, but could not be stretched to cover the vast majority of pension schemes.

In small, self-administered pension schemes with a maximum of 12 members, those owning the company, putting the money into the scheme and taking out the benefits are usually the same people.

In small family firms the bulk of the assets can sometimes be held within the pension scheme. If assets were held within the company then a divorce judge would have fewer problems in ordering a settlement to a spouse. But once the assets are moved into the pension scheme the jurisdiction of the courts has always been thought to have halted at the point where the trustees take over and have wide discretion within the scheme rules.

The judgment overlays the legislation relating to trustees and pension schemes.

A spokesman for the National Association of Pension Funds, said that on the face of it the judgment seemed to fly in the face of accepted principles, and would require legislation to give the principle wider application.

The PMI working party is expected to suggest a way that pensions entitlement could be divided. This could be done by the pension scheme trustees with the agreement of the divorcing couple, or may need the intervention of the courts if no agreement can be reached.

An earlier PMI report suggested that the poorer spouse, usually the wife, would register a claim on the spouse's pension at divorce, and could return to court on the husband's retirement to argue for a share of his pension. This idea flies in the face of the move to a clean break was not well received.

(Photograph omitted)