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Divorce Separation

Pension adjustment orders on divorce and separation-what you should know

The benefits payable arising from a pension scheme can only be paid in accordance with the terms of the scheme. This means that an individual member cannot change the terms or pay-outs under the scheme, even if the trustees agreed (which will not be the case).

Therefore, a deed of separation between separating spouses that purports to make changes to the pension scheme will simply not work. The only way that a scheme can be changed is with a pension adjustment order (PAO) granted by a Court.

This is done pursuant to section 12 of the Family Law Act, 1995.  

Pension adjustment orders

If the parties to a failed marriage agree terms on which they will divorce they will need a pension adjustment order from the Court to change the retirement or contingent benefit to which one of the parties is entitled under the pension.

The powers of a Court in this regard are contained in section 12 of the Family Law Act, 1995 and section 17 of the Family Law (Divorce) Act, 1996.

Pension adjustment orders provide a further mechanism by which a court can try to ensure proper provision is made for the spouses and dependent children in a divorce.

A pension can be viewed as an asset of either party and can be divided or transferred from one party to the other. It can also be used as a way of ensuring maintenance is paid by one party to the other.

The power to make a pension adjustment order is only available after the granting of a decree of judicial separation or divorce. A separation agreement cannot make any change to a pension.

Any court application will require the trustees to be put on notice. If they are, and their agreement to an order is obtained in advance, the costs of having trustees attend court will be avoided.

The recommended practice, therefore, is for the parties to agree the form of pension adjustment order with the trustees of the pension. The trustees will give a letter approving the draft PAO which will then be handed into Court when the application is made. A court will require details of the pension scheme and the trustees of the scheme.

Different types of pension scheme

There are two broad categories of pension scheme:

  1. Occupational pension schemes; and
  2. Self-employed schemes

Occupational pension schemes

Occupational pension schemes can be broken down into

  1. Defined contribution schemes and
  2. Defined benefit schemes

Where financial relief is being sought pension details should be provided in an affidavit of means which should set out the nature of the scheme, benefits payable, normal pensionable age, and period of reckonable service.

Defined contribution scheme

A defined contribution scheme is one where the employer and/or employee pay a percentage of the employee’s salary into the scheme. This is then invested by the trustees.

Self-employed schemes generally fall into this category.

Defined benefit scheme

This type of scheme where a specific level of pension is supposed to be paid to the employee on retirement, usually a percentage of the employee’s salary. The pension scheme operated by the Civil Service would be an example of such a scheme.

The pension adjustment

There are two aspects to pension adjustment:

  1. Ear-marking and
  2. Pension splitting

Ear-marking means a portion of the pension benefit should be paid to the other spouse.

Pension splitting means that a percentage of the retirement benefit of a pension is used to provide a separate pension for the other spouse. This could be provided in the same pension scheme, or a separate one.  

A period and percentage

A pension adjustment order in respect of a retirement benefit will specify two things, at least:

  1. A period and
  2. A percentage

The period is the period of reckonable service of the member prior to the divorce or judicial separation. This should state the commencement date and cessation date.

The percentage will be the percentage of the mount of the benefit to be paid to the other spouse on foot of the order. This can run from .001 per cent to 100 %.

It is worth noting that a pension adjustment order can only be made in favour of a spouse or a dependant but cannot be made in favour of a spouse who has remarried. An application cannot be made for a pension adjustment order in respect of a contingent benefit after 1 year has passed after the divorce or judicial separation.

Nominal pension adjustment orders

The law does not make provision for a “nil” order so the usual thing is a nominal pension adjustment order for a period of one day, at the beginning of the period of reckonable service, a percentage of 0.01 per cent or less.

Pension splitting

Where an order is made regarding a retirement benefit payment could commence immediately if the retirement benefit had already commenced being paid to the member spouse. This would apply where the member spouse had retired.

Where the member spouse has not retired, and the payment of retirement benefit has not commenced, the applicant spouse has 2 options:

  1. She may leave it in the pension scheme, and it will become payable when the member spouse retires
  2. The applicant spouse can have an amount of money transferred from the scheme, which would equal the value of the designated benefit

A spouse who has obtained a pension adjustment order in respect of a retirement benefit may apply to the trustees for pension splitting at any time from the date of the order to the date of commencement of the payment of the designated benefit. The trustees must value the percentage of the retirement benefit for payment to the applicant spouse.

Once this is ascertained the trustees can

  1. Hold the transfer amount within the scheme for the benefit of the applicant spouse or
  2. Pay the transfer amount to another pension scheme or approved arrangement-for example, a buyout bond

Any applications to court in respect of a pension adjustment order, or any other order regarding a pension, obliges notice to the trustees of the scheme.

Once an order is made by court in respect of a pension the order should be served on the trustees of the pension scheme.

Conclusion

Pension adjustment orders can be a complex, complicated area of divorce or marriage breakdown. It is often the case that lay litigants can manage to obtain a divorce without the aid of legal assistance but require it for the subsequent pension adjustment order applications.