The business of divorce - and why never to ignore a pension

Enoch Evans LLP

Business interests and pensions are both resources that will be taken account of when looking at financial issues upon the breakdown of a marriage.

Ignoring the potential arguments about non-matrimonial property and how a value may have changed since the parties separated, the Court needs to take account of all assets including pensions and any business interests.

The Court will look at the value of all the available assets when deciding how it will divide them, the aim being to reach a fair conclusion and distribution.

The first point to consider is whether or not the business needs to be valued at all. This will depend upon a number of factors, including the level of your spouse’s ownership or control of the company, whether there is a large amount of capital within the business, the assets the company holds and your spouse’s access to those.

Then we need to consider the profits or turnover of the business as this will be relevant in determining what resources your spouse has.

If assets are held on trust for your spouse by the company or if having looked at the accounts, there are discrepancies or queries, then this may mean that a valuation is relevant and proportionate to undertake.

Although there is case law dealing with the principle of ‘piercing the corporate veil’ to consider, the courts will treat the valuation of a company with some caution given that there are reported cases of the sale prices of companies or shareholdings being very different to valuations obtained in proceedings.

The value of the business cannot be treated as the value of cash, just like when considering pension assets, but it should not be ignored and you should seek expert advice to ensure nothing relevant is overlooked when you come to separate.

A recent study by Scottish Widows found that of 5,000 adults interviewed, only nine per cent thought that splitting pensions on divorce was an important factor.

This can be a very expensive error to make.

The pension can often be the parties’ largest asset after the matrimonial home.

There are now three options to consider when looking at pensions on divorce.

1) Offsetting – Where one party keeps their pension and in return the other party has a larger share of the remaining matrimonial assets, such as the house or cash.

2) Pension sharing – This is where the pension is divided and the ex-partner receives a percentage.

3) Pension attachment – where part of your ex-partner’s pension is redirected to you, payable when you retire.

I have found these orders much less common, with clients often preferring option 1 or 2.

So do not overlook the value of the pension when considering a fair division of matrimonial assets and remember that for assets accrued during a marriage, the starting point is equality.