Divorce and pension sharing as an expat
The subject of divorce has once again been brought to the forefront of many people’s minds by the news of Bill and Melinda Gates going their separate ways. The Gates were married for 27 years before calling it off and this is by no means an uncommon situation. The culminative divorce rate in the UK over a 50-year period from 1967 to 2017 was 33.3%. Whilst admittedly most people don’t have to negotiate the split of $130 Billion, divorce can still be a complicated process, especially when assets are illiquid or currently untouchable, such as a pension pot.
Pension Sharing Orders (PSO)
One of the biggest hurdles for expats in this situation is that the courts of England and Wales will not automatically enforce orders made by foreign courts in relation to pensions.
Typically, pension sharing orders are relatively straightforward and fairly common in the UK, it is only when the order is made through a foreign court that an issue is likely to arise. A PSO, as the name suggests, is where a court orders the divorcees to split their pension as part of the divorce settlement. A percentage share of any pension is awarded to the ex-partner. This share may be transferred into the clients’ own name, which could be an existing or a new plan. Or the client may be given the option to join the ex-partner’s pension scheme.
Earmarking
Another option is called ‘Earmarking’ – this is where the spouse receives a percentage of the income from that pension when the member commences drawdown. This is less popular given that the spouse does not have any control of when that drawdown commences, how the pension is invested/managed and the fact that the two people are still connected whether they like it or not through that source of income.
Offsetting
You can also opt to offset the pension value against other assets such as property. So one partner takes a higher percentage of the property asset in exchange for giving up any claim to the pension pot. This is probably the easiest option.
What if the pension is in a QROPS?
Qualifying Recognised Overseas Pension Schemes (QROPS) are outside of the earmarking or pension sharing jurisdiction of the UK courts. In reality, if the courts and the divorcing client realise their lack of jurisdictional power over this asset, they can opt to offset against it by claiming a higher percentage of the assets they do have power over. This will only work given those assets are of sufficient value to do this and that the overseas pension has even been disclosed in the first place.
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