New rules on apportioning pensions in case of divorce not necessarily unfair

Equal division of matrimonial property is not always the fairest way, says Linda Walker

AS the dust settles on the Supreme Court decision Mcdonald v Mcdonald, the major implications for couples in the process of separating are sinking in.

The case hinged on how to correctly apportion the value of Mr Mcdonald’s pension for the purposes of divorce. The dispute involved the interpretation of Regulation 4 of the Divorce etc (Pensions) (Scotland) Regulations 2000, which provides a simple formula to apportion the value.

The formula provides a straight line calculation with no other contingents. The formula is A x B/C where A is the value of the pension rights at the date of the parties’ separation, C is the period of the person’s membership in the pension scheme up until the date of separation and B is the period of C during which the parties were married.

In the case of Mcdonald, Mr Mcdonald became a pensioner member only five months after he was married and was a pensioner member for 25 years until his separation. The question was whether C in the formula was the whole period of his membership – being 381 months – or only the period of his active membership, 75 months.

If ‘active membership’ was used, the amount assigned to the matrimonial property ‘pot’ was £10,002. However, if both active and pensioner membership was used, the figure rose to £138,534 – a huge difference between the two figures depending how ‘membership’ was interpreted.

Both the Sheriff and the Inner House of the Court of Session ruled that membership was restricted to

‘active membership’. The reasoning was primarily based on the general principles of the 1985 Act that spouses should share only the wealth accumulated by each spouse over the period of the marriage. It was considered the pension was only “acquired” during the period in which Mr Mcdonald was contributing to it and not during the period when he was a pensioner member.

The Supreme Court overturned the Inner House, unanimously, ruling that the interpretation of ‘membership’ in regulation 4 refers to the whole period of the person’s membership, both while contributions were being made in that period and after that.

With personal pension schemes, contributions can be made on an irregular basis, with large one-off sums being contributed over a period of time, so it might be difficult to ascertain at which point a person has ceased to make contributions altogether as opposed to a temporary break in contributions which may be resumed at a later date.

However, the Supreme Court decision does not necessarily result in any unfairness. It is clear from the 1985 Act that the matrimonial property should be divided between the parties fairly – but this does not always mean equally. Section 9(1) of the 1985 Act contains several principles which could be used to justify a departure from equal sharing where this would result in an unfair split. Further flexibility is introduced by the recognition in section 10(1) that there may be other special circumstances justifying a departure from equal sharing of the matrimonial property and family lawyers are well used to using both section 10(1) and section 9(1) in persuading a court that an equal division of the matrimonial property is not the fairest way to divide the matrimonial assets.

This may well seem to be the better remedy, rather than trying to shoehorn in an interpretation of Regulations (which appear otherwise clear in their terms) to achieve the same result. Separating couples might well agree, or disagree, with the fairness of the judgment – depending on which side of the argument they are on! Linda Walker is a family law Associate at Balfour+manson LLP