It is an unfortunate fact that divorce rates for serving members of the Armed Forces has risen when compared to civilian couples. This may be down to long deployments, having to move around the Country or long periods of separation. Therefore, if you are experiencing a separation or a divorce, it is important that you instruct lawyers who understand how an armed forces pension works.
For most couples, the most valuable asset is their house, second to that may be their armed forces pension. There is a great deal of misunderstanding around how pensions are dealt with upon divorce. At AWD Law, we have many years experience acting for armed forces personnel and we are able to offer you legal advice as to how your pension may be treated on divorce.
A pension is not treated the same as a capital asset because there is no ‘pot’ of money to divide. However, it is an asset which is taken into consideration by the courts when parties divorce. The first step would be for you to apply for a CEV (Cash Equivalent Value) of your pension if your pension is not in payment. If your pension is in payment, you need to apply for your CEB (Cash Equivalent Benefit). We would not be able to accept information printed from the AFPS Calculator for pensions not in payment, as this is for guidance only as it does not show some of the other benefits available. Sometimes there is a delay when requesting the CEV or CEB, therefore, this information should be requested straight away from the administrator of your pension scheme.
So, what can happen to your pension upon divorce?
There are three main options available to couples when they divorce but each option depends upon the circumstances of each individual case:-
- Pension Sharing Orders (PSO)
This is when a percentage of pension benefits are shared between the spouses/civil partners upon divorce. Once a percentage for the PSO has been set out in a Court Order it will also be recorded on a Pension Sharing Annex which is attached to the Court Order. These documents along with the Decree Absolute are then sent to the Service Personnel and Veterans Agency (SPVA) in Glasgow. The SPVA will have 4 months from the date of receiving the documents to implement the terms of the PSO. Therefore, upon implementation, the Service person’s AFPS-75 will be debited by the amount of the percentage cited within the Court Order and Pension Sharing Annex. The percentage of the debit will produce a credit to the ex-spouse upon implementation of the PSO. The percentage of pension credit must remain within the same AFPS-75 scheme so the ex-spouse will eventually receive a AFPS-75 pension of their own. However, if the pension benefits are not in payment, the ex-spouse may not be able to draw from the benefits as this will be dependant upon their age.
There are advantages and disadvantages to both parties relating to PSO’s. If the PSO is made perhaps in the middle of the Service person’s career, then the serving member has time to benefit from the contributions made by his/her employer by topping up their pension. They could benefit from pay rises or promotions so the effect of the PSO upon their retirement would not be as drastic as perhaps a serving member who only had a short period left to serve before their retirement.
The ex-spouse (depending on their age), may not be able to draw any benefits from their pension until retirement age. However, for Court Orders made after 5th April 2009, the benefits can be accessed by the ex-spouse from the age of 55 years but their pension income will be actuarially reduced due to receiving it earlier than normal retirement age.
If the Service person has retired from the armed forces and pension income is already in payment when the PSO is made, then the effect of a PSO will mean that the debit is made immediately upon implementation of the PSO and his/her income will be reduced immediately. The income will reduce even if the ex-spouse is not entitled to receive their pension benefits due to their age being under 55 years. Therefore, a situation could arise and quite often does arise when an armed forces personnel retires from the forces at say age 42 (based on 22 years service) and their pension benefits are drawn almost immediately. If say the ex-spouse was a similar age, the ex-spouse would not be able to draw from their pension until the age of retirement, or aged 55 if they take an actuarially reduced pension. Therefore, parties in this type of situation would have to explore options to alleviate an income gap situation but this would be dependant upon other factors.
- Pension Attachment Orders (PAO)
Pension Attachment Orders (PAO) are different to PSO in that no separate pension fund is created for the ex-spouse. It is simply an extension for the court to make spousal maintenance payments so as to provide for regular income and/or a capital lump sum payment. The pension rights remain entirely in the Service person’s AFPS-75 scheme and a percentage of the pension income/capital is paid directly to the ex-spouse.
There are some advantages and disadvantages to entering into a PAO which must be carefully considered.
- The income or capital can only be paid out once the Service person retires, therefore, the ex-spouse would not have to wait until their normal retirement age. This could be beneficial to the ex-spouse if they needed a top up of income or a capital payment from the gratuity quicker rather than waiting until normal retirement age. However, for the ex-spouse to receive a capital amount from the gratuity must mean that the AFPS-75 is not already in payment.
- A PAO can be varied and changed by a court either before retirement or once in payment so there is no absolute certainty.
- If the ex-spouse subsequently remarries, they will lose their rights to the PAO. So if they are receiving a percentage of pension income, this will stop.
- If the Service person dies, the pension dies with them meaning that the ex-spouse will lose their income and capital.
- A PAO includes all pension rights accrued in that arrangement after the making of the order, as well as those accrued to the date of the order being in force (upon retirement).
PAO are not used very often due to the uncertainty as stated above, however, they can be useful in limited situations.
- Pension Offsetting
This is an option where there are other assets apart from the pension in which to offset the pension. In such a case, if the pension pot is a similar value to the equity within the marital home, you may decide to retain the pension and your spouse could keep the equity within the house. Offsetting will depend on the value of any other available assets.
If the pension is retained, in return, the Service person will have to give up a proportion of other existing matrimonial capital to compensate the other spouse,.
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.
At AWD Law we offer 10% discount against legal fees (excluding third party disbursements) to serving members of HM Armed Forces and we also offer a free 30 minute no obligation appointment.
If you would like to discuss your matter, please contact us by email at info@awdlaw.co.uk / enquiries@awdlaw.co.uk or by telephone on 01329 232314 and we will put you through to the correct person who can help you.
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