Navigating Financial Settlements: A Series of Guides to Section 25 of the Matrimonial Causes Act 1973 in Family Law – s25(2)(h)
This blog, focused on Section 25(2)(h), is the last in the series exploring Section 25 of the Matrimonial Causes Act 1973 (MCA 1973). Section 25 of the MCA 1973 provides that it is the duty of the Court to have regard to all the circumstances of the case when considering what financial orders to make following a divorce or civil partnership dissolution, with first consideration being given to the welfare of any child of the family under the age of 18 years old. It goes on to provide a list of factors that the Court is to consider in particular, namely:
“(a) the income, earning capacity, property and other financial resources which each of the parties to the marriage has or is likely to have in the foreseeable future, including in the case of earning capacity any increase in that capacity which it would in the opinion of the court be reasonable to expect a party to the marriage to take steps to acquire;
(b) the financial needs, obligations and responsibilities which each of the parties to the marriage has or is likely to have in the foreseeable future;
(c) the standard of living enjoyed by the family before the breakdown of the marriage;
(d) the age of each party to the marriage and the duration of the marriage;
(e) any physical or mental disability of either of the parties to the marriage;
(f) the contributions which each of the parties has made or is likely in the foreseeable future to make to the welfare of the family, including any contribution by looking after the home or caring for the family;
(g) the conduct of each of the parties, if that conduct is such that it would in the opinion of the court be inequitable to disregard it;
(h) in the case of proceedings for divorce or nullity of marriage, the value to each of the parties to the marriage of any benefit . . . which, by reason of the dissolution or annulment of the marriage, that party will lose the chance of acquiring.”
My colleagues have already covered the above paragraphs (a) to (g) and these can be accessed here:
For the purpose of this blog, I will be focusing on Section 25(2)(h). Paragraph (h) relates to “in the case of proceedings for divorce or nullity of marriage, the value to each of the parties to the marriage of any benefit … which, by reason of the dissolution or annulment of the marriage, that party will lose the chance of acquiring”.
The relevance of each of the different factors listed under Section 25 of the MCA 1973 vary from one case to another depending on the circumstances, and paragraph (h) probably has a bearing on the outcome of a case more frequently than you might think. When resolving financial matters on divorce or dissolution of a civil partnership, the focus is understandably more often on those assets that are already realisable such as property, savings and investments. In the interests of ensuring fairness, however, provision was also included for the Court to take into account not only the finances currently available and those one spouse will lose as a result of a divorce, but also the financial benefit one party may lose the chance of acquiring.
Whilst this factor is phrased in vague terms as to what it relates to, it can involve potential entitlements such as those under a trust (e.g. from a family trust fund) or life insurance policy, or perhaps more commonly, entitlements relating to the other spouse’s or civil partner’s pension. For example, it is not uncommon for pension funds to provide for a financial entitlement to the spouse or civil partner on the death of the member. In the event of the parties divorcing or civil partnership being dissolved, however, such an entitlement could be lost. If the spouse with the pension is considerably older and the entitlement would be significant, this may be an important factor that needs to be taken into account when determining the financial matters. Historically the benefits derived from pensions have frequently been overlooked with pensions often simply offset against other assets. There is, however, now an increasing awareness of the importance and value of pensions when considering financial matters on divorce or dissolution of a civil partnership, which I refer to further below.
In terms of pensions on divorce or dissolution of a civil partnership, the main ways these can actually be shared are by way of (1) Pension Attachment Orders (also known as Earmarking), or (2) Pension Sharing Orders. Pension Attachment Orders were previously more common, but are now rarely ordered because Pension Sharing Orders have been introduced more recently and are generally regarded as a preferable way of sharing pensions. A pension attachment order essentially involves redirecting some or all of the benefits of one party’s pension to the other party, although the pension remains in the sole name of the person that is the member of the pension scheme. The disadvantages of this include that there is no clean break as the parties are tied by the pension, that the receiving spouse will need to wait for the member spouse to begin claiming their pension benefits, and the fact that payments will cease upon the death of the member. By contrast the more recently introduced pension sharing orders essentially involve dividing the relevant pension immediately so that a share of the pension is transferred to the recipient who then holds their own pension to manage and claim as they see fit. This allows for a clean break and means that the recipient has their own pension to manage and utilise as they wish, free from the other party.
An alternative to sharing pensions in one of the above ways is to instead off-set them. This involves one party keeping their additional pension assets, whilst the other party receives a greater share of the other assets (such as savings, investments or equity from a family home) as a means of compensating them. Historically this has been a very common way to resolve pensions on divorce. There is, however, an increasing awareness that whilst pensions may be something that you will not benefit from for many years, they are often one of the most valuable assets of a marriage or civil partnership. Furthermore, the Cash Equivalent Valuations (CEV) often used to value pensions, are not always an accurate way of valuing the asset. For example, where Defined Benefit Pensions or Public Sector Pensions are concerned the true value of the pensions may in fact be far greater than the CEV provided by the pension scheme. Often the only way to determine the true value of a pension is to instruct a Pensions on Divorce Expert (PODE) to advise. A PODE can advise on the true values of the pensions, the most appropriate way of sharing the pensions, or what sum of liquid capital assets (such as savings or investments) may be appropriate to compensate the other party if pension assets are to be offset. The current view is that as pensions are a very different type of asset to other capital assets such as savings or property, it is very difficult to compare them, and that pensions should in many cases be dealt with separately and shared by way of a pension sharing order, rather than by off-setting as has often been common in the past.
Given the lack of proper understanding regarding pensions and how they should be dealt with on divorce or dissolution of a civil partnership, a Pensions Advisory Group (which included judges, lawyers, academics, financial advisers and actuaries) was set up in 2017 to prepare a report on the treatment of pensions on divorce. The first report was published in 2019 (commonly known as the PAG report) and an updated version was released in 2024. This report provides extremely helpful guidance for both members of the public and legal professionals alike as to how pensions should be approached. The report highlights the preference for pensions to be shared rather than off-set in many cases. It also highlights the type of complicating factors that may point to the need for a PODE to be instructed to provide a pension report.
As previously mentioned, pensions can often be one of the most valuable assets of a marriage or civil partnership. It is therefore very important to seek independent legal advice on the approach that should be taken in relation to pension assets, especially when they have a significant value. You can find further information regarding sharing pensions on divorce via the following link to my colleague’s blog titled “Pension sharing and divorce – what and how does this work?”
Whilst this article will hopefully provide some useful information regarding Section 25(2)(h) of the Matrimonial Causes Act 1973 and pensions generally, if you need tailored advice regarding such a matter then please get in touch with us to arrange a consultation with one of our specialist family lawyers.
Craig Yeung-Williams is an Associate Solicitor in our Brighton office.