Pension sharing after an overseas divorce – Brexit update

23rd December 2020 Family Law

I blogged earlier this year about the particular issues that can arise when parties have pension assets in a different country from where their divorce is taking place.

This represents a really thorny problem for internationally mobile couples or those who have emigrated from the UK. UK pension arrangements cannot generally implement the order of an overseas court. Conversely pension orders made by the court in this country cannot bind an overseas pension arrangement.

What can be done?

  1. If the pension assets are located here, parties may wish to consider carefully whether the entire divorce should take place in England and Wales, enabling the court to deal with the pensions directly. This is a tough call because the choice of jurisdiction can make a big difference to the outcome. It may be that the couple has no ongoing connection with England and Wales, so the court here would be unable to deal with the proceedings in any event. Jurisdiction may be contested and things may be moving fast. However, the location of substantial pension assets is one of the many considerations individuals should factor in when choosing where to get divorced.
  2. Where there are reasonably high levels of cooperation and – I must stress this – access to high quality pension, taxation and legal advice, pension funds can be moved across borders. This works both ways. An English couple with a foreign pension could use this option to move the pension then get a pension sharing order in the courts here. An overseas couple with a UK pension could undertake the same process in reverse. However, this is not an easy option and there may be considerable tax implications.
  3. If it is impossible to move the pension or get an order from the territory in which it is located, could other assets be rearranged to compensate the party who is missing out on the benefits of the pension sharing order? This is known as offsetting and is frequently seen in “onshore” English cases where there are reasons not to divide the pension. It is vital to get expert pension advice before proceeding with any kind of offsetting as pension assets are notoriously difficult to value and the potential for unfairness and/or honest mistakes is massive.
  4. Where there are UK pension assets but an overseas divorce, apply for a “Part III” order in the English courts. This sounds like the answer to the prayers of individuals with “unreachable” pension assets sitting in the UK. However, opportunities for taking this step are being dealt a blow by the nature of the post-Brexit family law settlement.

What has Brexit got to do with it?

The courts in England and Wales have the power to make a financial order after an overseas divorce where no or inadequate financial provision has been made. This does not mean that the English courts will pick up the slack created by any foreign financial settlement. The individual making the application has to show a substantial ground and must have a recognised connection with England and Wales, based on the parties’ domicile(s) or place(s) of habitual residence, or for very limited purposes, a home located here.

For couples with pension arrangements in the UK but no other ongoing connection, ingenious use was made of a piece of EU legislation known as the Maintenance Regulation, which came into force in 2011. This allowed qualifying individuals to obtain a pension sharing order in England and Wales after a foreign divorce by means of a Part III application, even though the UK pension arrangement was the only ongoing connection with this country. This is known as the “forum of necessity” jurisdiction.

From 11pm on 31 December 2020, the Maintenance Regulation ceases to be a part of UK law and, with it goes this jurisdiction to make a pension sharing order where the location of the pension is the only continuing connection with England and Wales. This is a sad loss for international families and until legislation is brought forward to open the door to pension-based claims, other workarounds will have to be found.

All may not be lost. 

Many people who live and work abroad may nevertheless have retained their domicile in England and Wales. Domicile is a difficult legal concept which depends heavily on the individual facts of the case. It is used to establish a connection between an individual and a particular legal system, in this case England and Wales. “Losing” one’s domicile after a move abroad can take many years and depends on a variety of factors. It is always worth asking the question and we are always willing to talk to individuals who think they could benefit from an English court order after a divorce overseas, whether to deal with pensions or otherwise.

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Elspeth Kinder is a Partner and Head of Department located in Manchester Londonin our Family department

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