Court Ruling On Divorce May Open Pensions Floodgates
Filed in: Pensions
01. May 2015
A controversial Supreme Court ruling could see thousands of ex-wives and husbands pursuing their former spouse for pension pots years after they divorce if no ‘financial order’ was established at the time, experts have warned.
On May 11 2015, the court allowed the latest appeal in the case of Wyatt v Vince. Ms Wyatt was given permission to challenge an earlier ruling in favour of her former husband, after he had appealed a decision to allow a financial claim issued 18 years after their divorce.
Mr Vince set up wind farm company Ecotricity in 1995, after the pair had split, and is now worth an estimated £107m.
He had appealed on the basis his ex-wife had lodged the claim too late, but five Supreme Court justices unanimously ruled her case should go before the family court.
Ms Wyatt is claiming a lump sum after claiming Mr Vince had failed to provide for their son and her other daughter. He did not initially pay maintenance when they split in the early 1990s because he did not have the funds, but has sinced amassed a fortune.
Lord Wilson said the pitching of Ms Wyatt’s claim at £1.9m was “ill-advised” and acknowledged that it might be dismissed, but envisaged that she might receive a “modest” award.
Elizabeth Hicks, partner at divorce lawyers Irwin Mitchell, commented: “This ruling essentially paves the way for anyone without a completed financial order to bring a claim against their former spouse regardless of how long ago they divorced.”
Financial orders are used to settle or confirm agreements about money or property between a couple who are ending a marriage or a civil partnership.
Robin Ellison, head of strategic development for pensions at law firm Pinsent Masons, said that in this case it is likely that when it goes to the lower courts, Ms Wyatt will probably lose.
However, he added the case could open the doors for other claims years after divorce - and in the wake of pension freedoms could prompt claims for rights to retirement savings that have increased in value since a split. “The decision makes it possible that long after a divorce a spouse can in theory pop up and claim pension rights which have improved in value beyond what was expected at the time.”
Pension administrator Equiniti noted a significant increase in pension valuations as a result of divorce over the past couple of years, becoming as important as property assets in such cases.
Paul Sturgess, director of strategy and pensions administration at the firm, said pensions and property have become equally important assets in divorce settlements, with likely to become increasingly so as people begin to understand the often significant sums involved.
He said: “In recent years awareness of the significant financial value of pensions has risen, and as a result they are increasingly being assessed as an asset at divorce. This spike is likely to be further fuelled by the current focus on pensions.
“The Supreme Court ruling is likely to also have a further knock-on effect, prompting many divorcees to revisit the fact that no ‘financial order’ was put in place at the time of divorce.”
Mike Morrison, head of platform technical at AJ Bell, said he doubted whether Ms Wyatt would get anywhere with her case, but still added that it comes as a timely reminder to understand what assets your partner has.
“UK divorce legislation has long been out of sync with other countries, to the point wealthy people from Europe and America will often have their cases here as it is deemed a more favourable system.
“In terms of ‘pension sharing’ orders, under the new regime the courts are able to divide the cash in defined contribution schemes, but with defined benefit schemes it is less flexible, so awards are dependent on transfer values rather than coming in income or cash.”
Mr Ellison added that claims might prove rare because courts are “very averse to extended litigation” except in extreme cases. He also said pension freedoms “allow a scheme member to restructure pension rights - abandon a survivor’s pension - making it harder to frame a claim”.
Source : FT Advisor