Navigating pension complexities in international divorces
We live in a global era. People increasingly enjoy careers which span two or more countries, accruing pensions in various jurisdictions along the way. This can cause complexities in the event of marriage breakdown, particularly where the couple may be divorcing in a different country from that where the bulk of their pension assets are held.
Unlike in other countries, English pension providers will require an order from the English courts to share a pension following divorce proceedings. Obviously, where the divorce itself is taking place in England & Wales those pension issues can be given full consideration, and the necessary pension sharing orders made (if appropriate), as part of a financial order granted as part of that divorce. However, where the divorce proceedings have taken place overseas, it’s essential to consider whether an application is required (and indeed, whether an application is possible) to the English courts to deal with any pensions situated here. This situation may arise where there are English or Welsh nationals, who have since settled overseas but have retained pensions in this jurisdiction, or where there are foreign nationals who worked in this jurisdiction for a time, but subsequently returned to their countries of birth, or moved elsewhere.
In the remainder of this blog we refer to English pensions and the English courts, but the law equally applies to the position in Wales. Different considerations apply in Scotland and Northern Ireland.
The court’s power to share English pensions following foreign divorces
The power of the English courts to make a financial order following a foreign divorce comes under part III of the Matrimonial and Family Proceedings Act 1984. Equivalent provisions apply under Schedule 7 of the Civil Partnership Act 2004, providing a potential route for sharing of English pensions following an overseas dissolution of a civil partnership.
An application under part III is a two stage process:
- Firstly, the court’s permission is required to make an application. The test for granting permission is that the court must consider “there is substantial ground for the making of an application for such an order”;
- If permission is granted, then the court deals with the substantial application. The court has a duty to consider whether, in all the circumstances, it would be appropriate to make the order sought. They are directed to a number of factors which will need to be addressed. In most pension cases, the following factors are particularly relevant: the provision (if any) already made in the overseas divorce, the extent to which the English pensions were factored into that division (i.e. many overseas orders will specifically provide that the parties will take further steps in England to share the UK pensions), the ongoing connection with England, and the reason for any delay.
Where (as often is the case in these scenarios) the parties are in agreement as to wanting to secure an English pension sharing order, the application for permission and the application for the substantive order can effectively be amalgamated with the court being asked to deal with the permission application, and the application for the substantive ‘consent order’ at the same time, and on a consideration of the papers only.
Firstly, though, the court must be satisfied it has jurisdiction to entertain such an application. This has become more difficult following the UK’s withdrawal from the EU. Previously, it had been possible to secure jurisdiction relying on the ground of ‘necessity’. However, now the applicant must point to:
- Either of the parties having been domiciled in England & Wales on the date of their application for permission or on the date of the overseas divorce; or
- Either of the parties having been habitually resident in England & Wales throughout the period of one year ending on the date of the application for permission or on the date of the foreign divorce.
There’s a third ground for jurisdiction under part III (linked to having an interest in a dwelling house in England & Wales) but that ground would not allow an English court to deal with pensions.
In addition to the above, the applicant for an order must not have remarried as remarriage prevents any such application under part III to the court.
What can be done if there isn’t the necessary continuing connection to England & Wales?
Unfortunately, there are cases where the English court simply doesn’t have the necessary jurisdiction, either because neither party has the necessary connection with this country or because both have remarried. In those circumstances a degree of creativity may be required. As ever, creating solutions will be easier if the parties are in broad agreement and content to work together to achieve what is intended.
For example, the pension holder could agree to use pension freedoms to encash their pension and share the capital received with their former spouse. Where there are other (non-pension) assets available those could be shared so as to ‘offset’ the pension claim. It can prove possible for the pension holder to transfer their pension overseas, to a country where the courts can share that pension. Alternatively, a maintenance-based solution may be required where the pension holder continues to own and draw their pension and pays ongoing periodical payments to their former spouse.
Different tax and financial considerations will apply to all of the various options. It’ll be essential for the parties to work in conjunction with their lawyers and financial advisers in all relevant jurisdictions to find the best way forward.
Top Tips
If contemplating divorce overseas and English pensions are a significant factor in the overall context of assets held, the following should be considered:
1- Take early advice
Both in England & Wales, and in the relevant other country. It may be that the existence of English pensions means it would be more straightforward for any divorce to be started in England & Wales, rather than the country in which the couple are now living, particularly if they’re the only (or the major) asset in the case.
2 - Continue liaising with English family lawyers throughout the case
Even if the decision is made that the divorce should proceed overseas, this doesn’t mean the involvement of the English pension lawyers should end there (or the English pensions issues be simply put to one side until after the overseas divorce is obtained). Ideally, any financial settlement negotiated overseas should have English family lawyers input if there are significant English pensions. Lawyers overseas should ensure they understand what can and cannot be achieved in respect of those English pensions (particularly if the connection with England is weak). It may be preferable for a couple to agree to deal with the value in the English pensions in another way (as explored above). Alternatively, if a settlement reached overseas is predicated on the basis that a subsequent pension sharing order will be applied for in England & Wales, the overseas lawyers will need to understand how that process works in England to be able to adequately reflect those steps in their own settlement documentation.
3- Act promptly following conclusion of the overseas divorce
As mentioned above, ideally English family lawyers will have been involved throughout the overseas discussions as to financial settlement and will be well placed to then move promptly with obtaining, and implementing, the necessary order in England. However, often we are approached by people who may have obtained overseas divorces, and financial orders anticipating English pension shares, some time ago and they have held off from taking steps to implement (often concerned by the costs of further proceedings in England). Any delay will need to be explained to the English courts on an application under part III and therefore it is always best to act promptly.
4- Think ahead to implementation
Finally, implementation of any pension sharing should be carefully thought through. If English pensions are to be shared, then the recipient will need advice about where their pension share should be transferred to (they may – for instance – need to set up a pension in England to receive any pension share). Again, a multi-disciplinary approach will be required, with careful liaising between the lawyers, parties and their financial advisers.
If you are going through and international divorce and have pensions in England & Wales and would like to understand more about it, get in touch with one of our specialist lawyers.