Blog: The unintended impact of Brexit on pensions in a divorce – International Adviser

The conclusion of the Brexit transition phase has affected divorce, writes Matthew Taylor, senior solicitor at Stowe Family Law.

It has been widely publicised that changes to the rules will affect where international couples can get divorced.

What is less well known about, but equally important, is a change to the rules on pension sharing in the wake of an overseas divorce.

Brexit’s impact

In a divorce, pensions are often one of the biggest assets, bigger even than the value of the family home. Pension sharing orders in England and Wales can be used to enforce a division of the pension in defined proportions between former spouses.

Except in very rare circumstances, pension sharing orders cannot have an extraterritorial effect. Pension funds located in England and Wales will need a court order made in England and Wales for the pension share to be implemented. For those who have divorced in another jurisdiction, any financial order made in that jurisdiction cannot create a share of an English pension.

Wealthy individuals will frequently encounter cross-border elements to their divorces. Now that the UK has left the EU, pensions are a very important consideration where funds are held in multiple jurisdictions.

Overseas couples often retain pensions in a jurisdiction. This could be a couple who historically have lived and worked in England and Wales moving abroad to find their place in the sun; or someone who was not born and raised in England and Wales coming here to work for a spell before moving on to another country.

As the world continues to globalise and international relocation becomes increasingly prevalent, the holding of foreign pensions will become more commonplace.

Domiciled

Under Part III of the Matrimonial and Family Proceedings Act 1984 (MPFA 1984) it is possible for financial provision to be made for a party following an overseas divorce.

The purpose of this statute is to allow the court to make orders for financial provision where there has not been sufficient provision made overseas, and the parties have links to England and Wales. The Act can also enforce pension sharing agreements following an overseas divorce.

Section 15 of MFPA 1984 lays out that the court has jurisdiction to make such orders where either spouse:

  • Has their domicile in England and Wales on the date of the divorce or application under MFPA 1984;
  • Was habitually resident in England and Wales for a year before the date of the divorce or application; OR
  • Has an interest in a property in England and Wales that was a matrimonial home at the date of the application.

Domiciled status is determined by where the person believes their permanent home and roots to be, and includes factors in their background, heritage and future ambitions.

A person may claim only one domicile at a time. A person begins life with a domicile of origin inherited from the father if the parents are married and living together and the mother if not. A person is free to change their domicile of origin, which might happen if they wish to reside indefinitely in the jurisdiction where they are physically present.

Where parties have resided overseas prior to the divorce and retain no matrimonial property in England and Wales, the only way for them to establish jurisdiction under MFPA 1984 is to show that they retain an England and Wales domicile.

Anyone unable to do so, whether they have only lived and worked within the jurisdiction for a short time or have permanently left the jurisdiction with no intention of returning after adopting a new domicile of choice, will face enormous problems.

Divorcing spouses must be aware that in making an application for divorce in another country, a domicile of choice can me made which precludes their ability to apply for a divorce under MFPA.

End of transition period

Before the end of the Brexit transition period, overseas parties could also look to the EU Maintenance Regulation to establish jurisdiction.

This allowed courts in England and Wales to make a needs-based order under MFPA 1984, providing that proceedings for an effective pension sharing order could not be brought in another jurisdiction, known as “necessity” grounds. Since the vast majority of pension funds require a local order to be made, this test would usually be passed, allowing the court to make a pension sharing order.

With the end of the transition period, the EU Maintenance Regulation is now defunct. This means that overseas couples with no ongoing connection to England and Wales will be unable to share pensions administered in England and Wales.

This is likely to unsettle financial settlements or agreements reached following an overseas divorce, and potentially produce unfair results.

This is why it is imperative that overseas parties with pensions in England and Wales take advice at an early stage from a family lawyer about their ability to share a local pension.

This article was written for International Adviser by Matthew Taylor, senior solicitor at Stowe Family Law.

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