I don’t want to mention the “C” word. However, the reality is that I have to. Coming into week 5 (I think?!) of lockdown the impact of the virus is becoming abundantly clear. The immediate implications including domestic abuse, surrogacy, compliance with court orders and maintenance orders have all been covered by my colleagues. My thoughts now turn to settlement of financial claims.
What happens if you have already entered into a Minute of Agreement with your former partner and the virus now makes the implementation of that difficult or, even worse, impossible due to the dropping of investments and market fluctuations?
One area where this is particularly relevant is in relation to pensions. For many people, their pension is one of their most valuable assets after their home. That makes pension sharing (whereby a sum is transferred from one parties’ pension to the others) a relatively common way to achieve financial settlement.
For a pension share to take place a “qualifying agreement” will be entered into by the parties which will, amongst other things, specify the amount to be transferred.
A pension share is implemented upon divorce. For many couples, divorce does not follow immediately after the terms of financial settlement. It may be that the irretrievable breakdown of the marriage can’t yet be established. So while the pension to be shared may have been healthy at the point financial settlement was achieved it may be that the value has taken a downturn and there is now insufficient funds there to enable the agreed amount to be transferred.
Minute of Agreement
Often, the devil will be in the detail of the drafting of the Minute of Agreement. The Agreement may expressly provide for what should happen in the event there are insufficient funds there to enable the full amount to be transferred.
Even if it doesn’t then the law provides a remedy, at least as far as the current value of the pension. The Welfare Reform and Pensions Act 1999 provides for pension sharing. It provides that where the relevant order or provision (which is a qualifying agreement in Scotland) specifies an amount to be transferred, the appropriate amount is the lesser of (a) the specified amount and (b) the cash equivalent of the relevant benefits on the valuation day. The valuation day is a day within the 4 month implementation period determined by the pension provider.
So, in terms of the 1999 Act if the value of the pension is less than the amount specified in the qualifying agreement that lesser sum can still be transferred. Because pension shares require to be implemented within 4 months it is important therefore to act quickly in relation to this.
It is likely that will result in a shortfall and again how that shortfall is made up will very much depend on the terms of the Minute of Agreement. Typically there will be provision within the Agreement for a capital sum to be paid to meet any shortfall.
In many cases, a cash sum known as a capital sum is paid by one party to the other either instead of or as well as a pension share. Depending on the sum involved it may be that one party is liquidating assets to meet that sum and it may now be that those assets are now not going to realise as much as anticipated.
Consideration will have to be given to whether there are other assets or means that could be used to make the capital sum payment on time. If not then the recipient ultimately could take enforcement action including arresting bank accounts, wages or even seeking sequestration. It does, however, have to be remembered that there are limits as to what can be done during lockdown – enforcement may have to wait. An alternative solution may be to formally agree to an extension of time for the capital sum to be paid, given the circumstances. Communication is likely to be key here!
Overall, the remedies available will depend on the wording of the Agreement. As with most things in family law there is no “one size fits all” and the importance of taking early advice cannot be overstated.