However, it is the moral hazard issues that could cause greater damage than the freedoms-related challenges around attachment orders.
For example, it could be very easy for an individual who is over the age of 55 (the so-called ‘silver separator’) who has not yet commenced divorce proceedings to access and spend some of their pension money prior to formal court proceedings, either with or without the assistance/knowledge of their financial adviser.
| Key points |
* The FCA proposed trying to mitigate the effect of the pension freedoms on pension attachment/earmarking orders on divorce. * It is important to realise that, even when it is subject to a pension attachment/earmarking order, the pension still belongs to the original scheme member. * It is a general principle that before an injunction can be made under this section, divorce proceedings must have commenced. |
Even before the pension freedoms changes, there was a mechanism designed to prevent one party from disposing of assets before any financial settlement has been agreed, and this was an injunction under Section 37 of the Matrimonial Causes Act 1973.
It is a general principle that before an injunction can be made under this section, divorce proceedings must have commenced.
The Court also has the power to make without-notice applications to prevent disposal or even give orders to set aside asset disposals already made. As you would expect, such orders come with significant requirements of proof and motive as the idea of preventing a disposal, or setting aside a transaction, has significant legal implications.
A case of an individual who is aged over 55 seeking to exercise his or her right to cash in their pension with no explanation as to why (one is not needed), and then spending capital would surely be a difficult one to attribute motive to several years later.
All is not negative though, and already I have had a number of circumstances where pension freedom rules have been of real assistance in the division of assets on divorce.
The ready availability of the fund makes it ideal for meeting immediate cash needs and, as such, could facilitate a cash payment to a divorcing spouse to offset another asset such as the house. It may even be possible to take a partial transfer from a defined benefit scheme into a defined contribution plan scheme.
As pension freedom rules become the norm, it will be interesting to see how the courts use them, it is always useful to have a few real cases to illustrate current thinking by legal experts.
Early days yet, but in 2014 (SJ v RA [2014] EWHC 4054 (Fam) Nicholas Francis QC in his capacity as a Deputy High Court Judge anticipated a change of approach.
