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Family Law Blog

Comment on divorce & family law 

How to split up pensions

OK, you have the pension CETV and are persuaded it is the appropriate valuation to use. Like my last Blog on CETVs, this article is mainly for lawyers from other firms who do not specialise in family law and who need some basic guidance on this complex area. If you are not a lawyer, this article on pensions and divorce is likely to be more helpful.

The next step is to consider what % of the pension rights should go to whom. It is not an easy question!

I suppose it might be assumed that the obvious route is to simply do what is necessary to make the two people’s pension rights equal. Certainly this is a common approach. But how do you do that? It seems to me this can be done by:

1. Dividing the CETV by two to give equal CETV figures each

2. As commonly one party is expected to live longer then obviously they would need a greater share of the pension to keep the same level of income. So, you might then arrange an unequal division of the CETV to achieve an equal outcome, in other word by reference to the benefits on retirement.

I cannot presently find any rule or case that gives real guidance about what approach there should be to given case facts. The Court of Appeal dealt with a case of Martin-Dye and decided to apply the same % as they had used to deal with the rest of the marriage capital but I do not discern any consideration of point 2 above within the judgment.

But for years, in fact since the Matrimonial Causes Act 1973, the Court has been told to take account of the parties resources now and in the foreseeable future so it is surely the case that a fair division of the benefits is entirely foreseeable.

In reality, a simple division of the CETV is often likely even if only due to (rightly or wrongly) client concerns about the cost of a specialist pension expert looking at the issue of equal outcome by reference to benefits on retirement. Is the potential benefit of that approach proportionate to the monies involved? Are you sufficiently capable to make that decision?

Personally, I would tend to advise getting a pensions expert involved at a very early stage, but it is certainly necessary when considering pursuing the “equal outcome” approach.

Andrew Woolley
Divorce Solicitor

Comments and response - How to split up pensions

Rather than an internal IFA, I suggest that a more satisfying arrangement is one where a law firm has a properly vetted and trusted panel of IFAs, each with a particular specialism, to whom they can refer clients with confidence. Unless the law firm itself specialises in one area of law such as Family Law (can you think of any!), our poor old internal IFA would be faced with such a variety of work that he or she would never be able to fully develop mastery of one particular area. General practitioners have their part to play in financial services, but I agree with Brian on this: in an area such as pensions on divorce the need for an expert is compelling. By expert, I mean somebody who is dealing with these areas on a daily basis, not just dipping their toe in when the odd referral comes up.

Many solicitors I have worked with have told me that their clients prefer an external referral to seeing somebody within the law firm for financial advice - done right, I think it just feels better. Unfortunately many solicitors find it difficult to distinguish a specialist IFA from a GP. This is a problem on our side of the fence and has much to do with the alphabet soup of qualifications, but also ties into confusion over adviser remuneration and independence.

An internal IFA may not be the answer, but equally I do not think that giving the client the contact details of 3 local IFAs is fair either - clients look to their solicitor for guidance and all too often IFAs will know they are part of a beauty parade and cut their prices to get the business. Cheapest is not always best, and a client cannot be expected to know the difference between IFA Firm A and IFA Firm B and will often go the botton line. Solicitors should be able to confidently point their client to the right expert, and back up their decision with the due diligence they have undertaken on each and every professional connection they have.  ...

By Steven Hennessy on Monday August 2, 2010

The main issue, I don’t doubt we’d both agree on, is that client service MUST be at the top of the agenda. I DO know of a firm that specialises in just divorce—mine! We have 20 lawyers covering the country who do nothing else. I think much of the problem at the moment with internal advice is that law firms cannot really work that way. In October 2011 much of the regulation about this will be removed and e.g. IFAs can be partners in, invest in, own and/or share profits in law firms. That will by itself remove all the data protection, commission and referral problems lawyers have at the moment so an internal facility would be a very persuasive commercial argument for many firms.

If (and we do not propose to at the moment) we recruited IFAs, I assume we’d recruit an expert on pensions and one on mortgages. We’d not really need anything else. I know large groupings of IFAs are seeking to buy or invest in small law firms so it is coming anyway and we have to watch our commercial positions (both IFAs and law firms)....

By Andrew Woolley on Monday August 2, 2010

Thank you for your insight. Suffice to say that much has been written and said on the impact of the LSA next year, but one thing that will remain unchanged is the commercial imperative for law firms to offer exceptional professional care to their clients. In a recent report with JPMorgan, SIFA identified eight areas where IFAs can add value and fill gaps in solicitors’ client offerings. My personal opinion is that specialising in one particular area - whether you are a legal or financial professional - provides greater career satisfaction and is commercially prudent, but the truth of the matter is that there are many regional law firms who will attempt some or all of the above for clients, and by limiting their IFA relationship to just one or two in-house IFAs, they run the risk of failing to provide exceptional professional care. They would be better off putting together a panel of experts that can attend to the needs of clients to an exceptional degree in each area.

For the specialist law firm - and you’ve mentioned one in passing (!) - an internal IFA may be more than adequate because he or she is likely to spend the majority of their time working on one particular aspect of financial planning, say pensions. But for the regional and high street firms attempting to do a bit of everything, I sincerely doubt that one or two internal IFAs will be able to offer the level of expertise that clients increasingly expect and deserve. This is not to question their integrity or ability, but each of the areas mentioned above requires such a high level of technical knowledge and practical experience that a GP within a law firm will naturally be at a disadvantage because of the varied nature of their workload. Or maybe I am underestimating the talent of my peers! ...

By Steven Hennessy on Monday August 2, 2010

Steven: yes it is indeed the case that nothing should be done which compromises the giving of exceptional professional care. In fact that is, I think, the main thing holding me back at the moment as the commercial argument for keeping IFA type work in house seems unanswerable. As you acknowldge, it is easier for us than the many GP lawyers and law firms there are out there. They really must be very, very careful how they proceed….

By Andrew Woolley on Monday August 2, 2010


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