Brexit, pensions and divorce
The end of the Brexit transition period has had well-publicised effects on divorce for international couples, with a sea change in rules determining where parties can get divorced.
However, less attention has been given to an equally important change that may have a transformative effect on pension sharing following an overseas divorce.
The impact of Brexit on pensions in a divorce
Pensions are frequently one of the largest assets in a divorce, often outstripping the value of the family home. For divorces in England and Wales, pension sharing orders can be used to compel a pension fund to divide a pension in defined proportions between former spouses.
Other than in extremely rare circumstances, pension sharing orders cannot have an extraterritorial effect. Pension funds located in England and Wales will require a court order made in England and Wales to implement a pension share.
For couples who have divorced in another jurisdiction, this means that any financial order made in that jurisdiction cannot create a share of an English pension.
It is not uncommon for overseas couples to retain pensions in this jurisdiction. This can be because of couples who have always previously lived and worked in England and Wales moving abroad for their own place in the sun; or where someone who was not born and raised in England and Wales comes here to work for a period before moving on to another country.
As the world becomes more interconnected and international relocation becomes more common, so the holding of foreign pensions will become more frequent.
Following an overseas divorce, it is possible for an order for financial provision to be made for a party under Part III of the Matrimonial and Family Proceedings Act 1984 (MFPA 1984). This statute was designed to allow the court to make orders for financial provision where there has been insufficient provision made overseas, and the parties have a connection to England and Wales. It can also be used to give effect to agreements for the sharing of pensions following an overseas divorce.
Section 15 of MFPA 1984 sets out that the court has jurisdiction to make such orders where either spouse:
- Has their domicile in England and Wales on the date of the divorce or application under MFPA 1984;
- Was habitually resident in England and Wales for a year before the date of the divorce or application; OR
- Has an interest in a property in England and Wales that was a matrimonial home at the date of the application.
While habitual residence is dependent solely on where someone lives, domicile is a more advanced concept that looks at the whole of a person’s life. It is about where they consider their permanent home and roots to be. It factors in their background, heritage and future intentions, and the realities of decisions they have made about citizenship and where to live.
A person can only have one domicile at a time. A person starts life with a domicile of origin inherited from their father if their parents were married and lived together, or mother if not. A person’s domicile of origin can be displaced by choice, which can arise when a person has an intention to reside indefinitely in a jurisdiction where they are physically present.
Where parties have lived overseas before the divorce and retain no matrimonial property in England and Wales, the only way that jurisdiction under MFPA 1984 can be established is by showing that they retain English and Wales domicile.
This creates huge problems for anyone who cannot do this – whether because they have only lived and worked in the jurisdiction for a brief time or whether they have permanently left the jurisdiction with no intention to return and have acquired a new domicile of choice.
Divorcing spouses should also be aware that in making an application for a divorce in another country, a domicile of choice can be made, thereby losing the ability for an application under MFPA.
Prior to the end of the transition period, overseas parties could also rely on the EU Maintenance Regulation to establish jurisdiction. That enabled the courts of England and Wales to make a needs-based order under MFPA 1984, provided that proceedings for an effective pension sharing order could not be brought in another jurisdiction. This was known as the “necessity” grounds. Given that the vast majority of pension funds require a local order to be made, this test would generally be passed, and the court could make a pension sharing order.
Following the end of the transition period, the EU Maintenance Regulation no longer has any effect. Therefore, overseas couples without an ongoing connection to England and Wales will be unable to share pension administered in England and Wales. This is likely to frustrate financial settlements or agreements reached following an overseas divorce and could produce unfair results.
It is imperative that overseas parties with pensions in England and Wales should take advice from a family lawyer based in this jurisdiction regarding their ability to share a local pension at an early stage.
Ideally, this should be done before any application being made for a divorce in an alternative jurisdiction to prevent parties unwittingly making a statement about their domicile that would prevent there being a pension sharing order.
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If you would like to find out more about Brexit pensions and divorce please, contact our Client Care Team to speak to one of our specialist family lawyers here.