Monthly Archives: December 2015

Divorce and pensions

Duncan Carmichael-JackDuncan Carmichael-Jack considers divorce and the sticky issue of pensions: protecting and rebuilding.

No-one can pretend that pension planning is the most exciting subject to engage with. But make no mistake as to the importance of understanding the tax treatment of your or your ex-spouse’s pension arrangements in any divorce settlement. Whether the task is protecting their value, obtaining a true and accurate valuation or seeking to re-build pension savings, the legislation can be complex and, at times bewildering.

Re-building pension benefits

If life was simple then it would be a relatively easy task to invest money back into a pension fund after a divorce. But life is not simple and nor are the tax rules. The government essentially caps the amount of contribution that can be made tax efficiently to pensions by using a mechanism called the Annual Allowance. For this tax year it is set at £40,000. It is also possible to carry forward unused annual allowance from the three previous tax years under prescribed circumstances. If you are a UK taxpayer, in the tax year 2015-16 the rule is that you will get tax relief on pension contributions of up to 100% of your earnings or the £40,000 annual allowance. Confused? It gets worse! From next tax year the annual allowance for higher earners will be tapered away, so that an individual with earnings in excess of £210,000 will have an annual allowance of only £10,000 and NOT £40,000. This could have a significant impact on a person’s capability to restore and re-build pension savings.

Protecting pension benefits

It is difficult where to start! Everyone has a Lifetime Allowance which from the tax year 2015/16 will be set at £1m. Pension savings in excess of this value can be taxed at up to 55% dependent upon how they are taken. The key point is that the government has introduced a number of different ways to protect pension funds from a potential tax charge. With any divorce settlement it is vital to establish whether a) some form of protection has been implemented and b) what type of protection/s (yes it is possible to have more than one) is in place. From the next tax year there will be up to eight different ways to protect a pension fund and each will (or could) have a slightly different way of working when brought into account for a divorce settlement.

The fact is that pensions are incredibly complicated and my recommendation is to seek professional advice as early as possible to avoid any nasty traps and make use of the tax and financial planning opportunities available.

Duncan Carmichael-Jack

Disclaimer:

The information and opinions expressed herein are the views of Vestra Wealth LLP and are based on current public information we believe to be reliable but we do not represent that they are accurate or complete and should not be relied upon as such. Any information herein is given in good faith, but is subject to change without notice. Investors should be aware that past performance is not an indication of future performance and the value of investments and the income derived from them may fluctuate and you may not receive back the amount you originally invested.

Arbitration’s moment

Duncan BrooksDuncan Brooks discusses his experiences of arbitration both as an arbitrator and as a barrister representing a divorcing client.

Arbitration of family financial matters on divorce is possibly fastest-growing form of dispute resolution in England and Wales. Since the advent of the first family law arbitration scheme here in 2012, it has increasingly captured the imagination of divorcing couples who are frustrated with the delays, potential publicity and inflexibility of the court process, yet for whatever reason need an independent and binding decision made by a third party in order to move on with their lives. I am privileged to have been appointed as an arbitrator in seven cases to date, and to have been involved as an advocate in several more.

The arbitration process is inherently flexible. It is possible for those involved to request an arbitrator’s decision on all financial aspects of their divorce, or just on the issue of maintenance where a capital settlement is already agreed, or vice versa, or on a discrete issue such as child maintenance where there are no other ongoing issues. This flexibility also extends to financial disclosure, which can be ordered on a bespoke basis: there is no cast-iron rule as to use of the Form E, for example.

The majority of arbitrations in which I have been involved have taken a similar form to a court hearing, where each advocate speaks in turn and evidence is called and tested. However, this is not obligatory: I have been involved in two arbitrations where nobody gave oral evidence, as the people involved had agreed to deal with the issues simply by having their barristers present their arguments to the arbitrator. Even that is deemed unnecessary in some cases, and it is possible to get an arbitrator’s decision on the basis of written arguments alone, which can be very cost-effective for specific and discrete issues. Also, it’s open to the arbitrator to deal creatively with particular points that arise as part of the decision-making process: for example, in one case, I had to decide about the appropriate cost of re-housing. Rather than hear evidence sequentially, as is usual, I heard evidence from both parties concurrently – a process known as “hot-tubbing” – which meant that I could lead the questioning and explore properties with each party at the same time.

I feel strongly that the experience of arbitration for people going through divorce is better than the court alternative. Because the arbitrator is working for the people involved, he or she can devote the necessary time fully to pre-read all of the papers and ensure complete familiarity with the circumstances. There are no other cases competing for the arbitrator’s time, unlike in a court environment, and case management matters can be dealt with by email or over the telephone meaning that costly interim visits to court can be avoided.

The arbitration “hearings” take place in a non-court environment, which is usually less intimidating than a court setting, plus the coffee and sandwiches are better! In three of the arbitrations in which I have served as arbitrator, the parties have chosen to be referred to by their first names only.

Another advantage in present circumstances is that arbitrations remain entirely confidential – the press have no right to attend an arbitration, although they do have the right to attend court hearings.

The procedure saves time and, counter-intuitively perhaps, money too. There is no court diary to worry about, meaning that the decision can be taken sooner. This shortens the process of litigation and the ongoing costs reduce as a result. The actual hearing is usually much shorter than it would be in court, because of the ability of the arbitrator fully to familiarise him or herself in advance. As arbitrator, I have yet to take more than 1 day over the hearing, because I have pre-read the papers in full and will deliver a written award promptly after the hearing finishes. These are cases that might be listed for three or more days in court, with all the attendant stress and costs, plus a lengthy wait for a final decision afterwards.

Arbitration is a bespoke and modern method of resolving financial disputes on divorce, which contrasts favourably with the often archaic workings of our court system. For those seeking to divorce creatively, cost-effectively and with dignity, it is surely worth investigating.

 

d.brooks@qeb.co.uk