Osborne To Plug Pension Loophole For Divorcees

The government may act to plug loopholes that new pension rules and legal decisions have left in divorce rules.

New pension rules introduced by Chancellor George Osborne in April did not consider how taking cash withdrawals from a pension subject to a court order would affect divorcees.

If separated couples have a financial order and the partner with the pension draws their benefits as cash rather than regular income, then the partner without the pension may have no claim on the cash.

This is because of the way courts made orders and the new rules did not take account of the legal wording.

In a case at the Supreme Court, a spouse went back to challenge an 18 year old financial order that could give her access to her husband’s pension cash years after their divorce was finalised.

Financial order foul up

Meanwhile, a divorcee with a pension that is uncrystallised – which is financial world jargon for untouched – has to pay nothing to a former partner whether there is a financial order or not.

This is because the pension has no financial value in legal terms until that it is drawn.

If the court put a value on the pension fund and the value dropped, the saver could be left paying cash to a former spouse out of other income, while if the value increased, the former spouse could be getting less than they are due.

“The whole pension thing for divorcees is a mess,” said a government spokesman. “We need to tidy up the loose ends so everyone knows where they stand.

“Meanwhile, any legal arrangement to pay a former spouse money that is rightfully theirs should be honoured.”

Challenge may fail

Changing the law was not mentioned in the Queen’s Speech, which laid out the government’s road map of legislation for the next Parliament.

The Chancellor is likely to include a rule change in his mini-Budget on July 8.

Although the Supreme Court case gives a former spouse the right to challenge old financial orders in principle, many lawyers believe the claims will fail in the courts.

“People from other countries often elect to divorce in the UK if they can because the legal system here is far more generous than in many other countries, even Scotland,” said a spokesman for financial firm AJ Bell.

“For instance, defined benefit schemes allow pension savers to restructure their pensions to do away with payments to surviving partners which make going back to court pointless.”

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