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In last week’s blog I explained the different ways armed forces pensions can be treated on divorce. I ended with a comment as to how the Early Departure Payment (EDP) could be affected by the way an armed forces pension is dealt with on divorce.
It’s probably easier if I explain what this can mean by giving an example of a case I was involved with, where this was important.
I was acting for the wife who had quite serious health problems. The husband was in the army and at the time of the divorce the husband had served approximately 20 years and was looking to leave. Both parties were in their 40’s and they had two children. The daughter was studying at university and the son lived with the wife and attended secondary school.
The couple had lived in service accommodation for most of the marriage and so did not own a property. Following the separation, the wife had to move into social housing. Prior to the marriage breaking down both of the parties were expecting to use the husband’s terminal grant and EDP lump sum to put a deposit on a property. The divorce changed those plans.
We had a pension expert, an actuary, prepare a joint report on the husband’s pension. The purpose of this report was to explore the effect of any pension sharing order which was made. There were no other assets to offset the pension against and there was very little trust between the parties. A pension attachment order was not considered appropriate as the husband would decide when and how much of his pension to take. Also, if the husband passed away the pension would be lost to the wife and there was little money spare for a life insurance policy to be taken out to cover this eventuality. This, therefore, only left the option of a Pension Sharing Order (PSO).
The concern about a PSO was that it would take effect within approximately 4 months of the divorce concluding. The husband was about to leave the army and this would mean his pension lump sum would be affected and the income he received upon leaving the army would immediately reduce because of the PSO. As a result, he would have less money to support himself and pay maintenance to the wife and their son. His new job prospects were not known. As the wife was not an existing member of the armed forces pension scheme her share of the pension could not be drawn down until she reached the age of 55. We therefore had a gap of about 12 years until the wife could access her pension and while the husband’s EDP was reduced.
The actuarial report was vital for understanding the impact of the PSO, covering what the husband would receive but also what would happen if the husband took his EDP before the pension order was made.
At the final hearing the judge awarded the wife approximately 25% of the husband’s pension. However, we took this decision to appeal. The actuarial report had not been fully understood by the judge and awarding the wife 25% of the pension due to the way the pension was valued only gave her a small pension for retirement; and had a limited impact upon the husband’s income stream when he left the army. On appeal the wife received almost 50% of the pension which when they both reached retirement age, this still gave the wife lower benefits than the husband because of the way the pension was valued at the time it was transferred. However, the husband was to pay the wife maintenance until the pension sharing order took effect and paid out to the wife, which balanced out the inequality.
There are three different types of armed forces pensions in existence, each of which has slightly different rules. There are different lump sum payments available when a person is about to leave the armed forces and if you are going through a divorce where there is an armed forces pensions whether in your name or your spouse’s it is important that you get legal and financial advice on this asset. This is particularly important if the pension holder is due to imminently leave the services.
Military pensions, in particular naval and armed forces pensions are complex and require specialist knowledge. Please contact me via e-mail or call 02392 000086 to discuss your individual circumstances.