The Law Commission is calling for the codification of pension-sharing principles to ensure pensions are treated as matrimonial property and fairly divided in divorce settlements.
The Commission’s new scoping report proposes four models for reform, ranging from codifying current case law to introducing default rules for asset division.
The report says that pensions should be regarded as “matrimonial property” in order to guarantee equitable distribution, pointing out that many divorcing spouses ignore them despite their possible value.
It emphasises that pensions should be divided in order to avoid unfair outcomes, particularly in cases where one spouse has made contributions to the pension while the other has not. According to the report, many spouses disregard their pensions in settlements which is evidenced by the few pension orders issued.
The report suggests that codifying the rules of pension-sharing will clarify the procedure and persuade spouses to take pensions into account when negotiating settlements.
The Commission emphasises fairness, ensuring both partners have an equal chance to achieve financial independence after divorce.
The report concludes that for a fairer distribution of assets, divorce law should incorporate pension-sharing concepts.
Dawson Cornwell associate Poppy Holmes says: “The Law Commission’s scoping paper on whether the law in relation to financial remedies should be reformed has been much anticipated by the family law community. It is no secret that family lawyers have been campaigning tirelessly for the laws that govern finances on divorce to be reviewed.
“At present these laws are not fit for purpose in the modern landscape of family law and it is good to see that, despite the commission starting work on this in April 2023, we are getting the review that we were promised.
“The paper rightfully looks at possible reform to the Matrimonial Causes Act 1973. This statue is over 50 years old and since then family dynamics have undergone significant transformations, with a shift towards more diverse family structures, greater gender equality and evolving roles within the household. Traditional norms have evolved and there has been an increase in cohabitation of unmarried couples, single-parent families, and blended families, all reflecting broader social and cultural changes.
“The law needs to be reformed to align with these changes. The current discretion in family law often results in inconsistent outcomes, lengthy and costly proceedings, and a huge amount of ambiguity for parties at what is a very challenging time in their lives.
“Although we will have to wait a long time before we see any actual reforms, this scoping paper is a welcome step in the right direction.”
Mishcon de Reya family law partner Claire Yorke says: “The report considers whether pension sharing should be a default position of any financial remedies law. With several studies showing that pensions are often overlooked when spouses resolve their financial affairs on divorce, despite a pension sometimes being the most valuable asset in a marriage, an expectation that pensions should be shared might go some way towards ensuring that financially weaker spouses are not left unable meet their needs on retirement. Any system should retain a degree of flexibility, with couples close to retirement having very different needs and concerns compared to those in the early stages of a career.
“The Law Commission notes that any reform to the law may include provision making nuptial agreements binding, although reform could range from confirming the current position that agreements properly entered into are upheld, provided they are fair, to creating a new system of formally binding agreements – this could bring the country in line with the approach adopted in many other countries worldwide.
“The present approach to pre-nuptial agreements reflects the discretionary nature of financial remedy proceedings as a whole – in particular, a pre-nuptial agreement that fails to meet the financially weaker party’s needs is unlikely to be upheld. While a more rigid regime would create greater certainty, hopefully reducing the need for litigation, the “safety-net” of meeting needs is attractive and should perhaps be considered as a requirement for any future scheme.”
