Pensions & Divorce

More and more people in Ireland are getting divorced. Along with the family home, pension funds can be the biggest asset that is divided between the separating couple. In the case of couples who divorce later in life, one spouse may have accumulated a large fund for retirement while the other has nothing at all. So, what happens to pensions in divorce?

What can be given?

When the Courts make an award, it is called a Pension Adjustment Order (PAO). It can be made in two circumstances:

1. Award against pensions. This can apply to all types of pensions, be it personal pensions or company paid pensions.
2. Award against death in service benefit. If a spouse have a death in service benefit through employment, a PAO may be awarded against that.

When can a PAO be given?

A PAO can be applied for by a spouse, civil partner or cohabitant under a judicial separation or divorce.

It can be sought in relation to pensions at any time on or after the relevant decree provided the spouse has not remarried or entered into a new registered civil partnership. In the case of a dependent child, that child must still be dependent.

In the case of death in service benefit, the application for a PAO must be made within 12 months of the relevant decree provided the spouse has not remarried or entered into a new registered civil partnership. In the case of a dependent child, that child must still be dependent.

How is the amount calculated?

The amount awarded is given as a percentage, never as an amount. The factors in decided the award are:

1. Time – the period over which the benefits are earned. The time period cannot extend past the date when the decree is given.
2. The relevant percentage – the percentage of the pension benefits earned over that period that are to be allocated to the other spouse.

Legislation does not allowed for an award to be given of no value. In the situation where the pension benefits are not to be divided, what is called a”Nil PAO” is awarded. A award of 0.0001% of 1 day benefits is given,  which is worth nothing.

What happens after the award is given?

 When the award is given, the trustees or life company are notified and it is noted on their policy. The spouse can then:

1. Leave benefits where they are and draw down the benefits when their ex-spouse retires.
2. Transfer them into a policy in their own name where they have complete control over the benefits.
3. Transfer to a scheme of which they are a member.
4. Have a separate policy set up within the same scheme as their ex spouse.

In some circumstances, the trustees may transfer the benefits out of the scheme without the spouse’s consent.

Can the benefits cease?

The PAO will cease if the spouse remarries or enters into a registered civil partnership. The death in service benefit will cease if the ex spouse leaves their employment which provides the benefit.

…A sneaky bit…

When it comes to calculating the Revenue maximum allowable fund, the value of the fund awarded to the ex spouse it still included.

Example

• Maximum pension fund allowed: €2m
• Spouse A has pension of €1m
• Spouse B is awarded PAO of €500,000
• Spouse A can only fund for an additional €1m in pension benefits, giving them a total of €1.5m personally.
• Spouse B can fund for €2m in benefits, giving them €2.5m personally.

Pension Adjustment Orders are extremely complex. Professional advice should be sought in all circumstances. If you have any questions, please email me directly at steven@bluewaterfp.ie