It is generally known that the proportion of accrued pension rights of spouses as at the date they separate will be regarded as matrimonial property for the purposes of calculating their respective entitlements to share in the matrimonial property. The Regulations relating to the calculation used simply refer to the period of the person’s membership in the pension scheme. The Supreme Court has recently issued a judgement on what the period of a person’s membership should be defined as meaning. This decision overturns decisions of a Sheriff and the Inner House of the Court of Session.
The circumstances of the case were as follows. Mr McDonald worked as a miner for British Coal. He joined the British Coal Staff Superannuation Scheme on 11 December 1978 and began contributing to it. He married Mrs McDonald on 22 March 1985. Shortly afterwards, he retired early on grounds of ill-health and exercised his right to receive a pension income before his normal retiring age. As a result, between 11 December 1978 and 10 August 1985 Mr McDonald was a member of and contributor to the scheme. Since 10 August 1985 he has been a member in receipt of income benefits under the scheme. The couple separated on 25 September 2010.
The relevant Regulations contain the following formula for calculating the proportion of Mr McDonald’s pension rights that would be regarded as matrimonial property : “A x B/C where – A is the value of these rights or interests in any benefits under the pension arrangement which is calculated, as at the relevant date, in accordance with paragraph (2) of regulation 3 above…; and B is the period of C which falls within the period of the marriage of the parties before the relevant date and, if there is no such period, the amount shall be zero; and C is the period of the membership of that party in the pension arrangement before the relevant date…”
The dispute between the parties related to that formula. The words which fell to be interpreted are the words in the definition of factor C, namely “the period of membership of that party in the pension arrangement”. Mr McDonald argued that the court should apportion the value of his pension rights by reference only to the period in which he was an “active member” of the scheme, that is the period during which he was making contributions to the scheme. On that basis, the value of his interest in the pension benefits which is matrimonial property would be £10,002. Mrs McDonald argued that the cash equivalent transfer value should be apportioned by reference to the period of Mr McDonald’s membership of the scheme, both when in pensionable employment and also when drawing a pension. On that basis the value is £138,534. A Sheriff favoured the interpretation put forward on behalf of Mr McDonald as being the correct and fair way to calculate the proportion of his pension rights that would be matrimonial property. This decision was approved by the Inner House of the Court of Session which dismissed Mrs McDonald’s appeal. The majority of judges hearing the case based their reasoning on the general rule found in section 10(4) of the Family Law (Scotland) Act 1985, which states that matrimonial property is confined to assets acquired during the marriage but before the relevant date of separation.
Mrs McDonald appealled to the Supreme Court which has upheld her appeal and overturned the earlier decisions. Amongst the reasons given by the Supreme Court were that the courts cannot insert words into the Regulations that are not already there and that to insert the words “active membership” into the interpretation of the Regulations would make no sense in the contect of private pensions where the concept does not exist.
Whilst on the face of it this might seem like an unfair windfall for Mrs McDonald (the period of contributions into the pension scheme from the date of marriage was less than five months before Mr McDonald retired on the grounds of ill health) the story might not end there. The Family Law (Scotland) Act 1985 does not require that the matrimonial assets are shared equally. The Act requires that they are shared fairly. There are other provisions in the legislation which allow for an unequal division of assets where there are special circumstances justifying this.
Although for separating couples in similar situations now the starting point is that the decision of the Supreme Court is binding it has become all the more important to consider how the circumstances of the couple might justify an unequal division of the matrimonial assets. Our litigation partners have a wealth of experience in providing advice and representation to clients who have separated or are contemplating divorce. We will be happy to guide you through the process to achieve the best possible outcome for you. If we can be of assistance to you the please call us on 01383 620222 for an appointment.
Brian Tait – Partner – firstname.lastname@example.org
Russel McPhate – Partner – email@example.com