Potential implications of Brexit on pension sharing after an overseas divorce

Potential implications of Brexit on pension sharing after an overseas divorce

Family analysis: Michael Allum and Stuart Clark, partners at The International Family Law Group LLP, highlight that obtaining effective pension sharing orders which will be recognised and implemented by pension providers in England and Wales after an overseas divorce is already a very complex and difficult area, and will become even more so in the event of a no-deal Brexit.

What options are currently available as to pension sharing on divorce where there is an international element?

Unless either spouse has a sufficient ongoing connection with England and Wales, the only way to obtain such an order is pursuant to Council Regulation (EC) No 4/2009 of 18 December 2008 on jurisdiction, applicable law, recognition and enforcement of decisions and cooperation in matters relating to maintenance obligations (the EU Maintenance Regulation). Depending on the terms on which the UK leaves the EU, this may no longer be possible after 29 March 2019 (exit day).

Almost all pension providers based in England and Wales require a local order (ie an order made by the family court in England and Wales) before they will implement any pension sharing arrangement. This presents a difficulty for spouses getting divorced in another country as the financial order they obtain within those proceedings providing for a pension sharing order will not be implemented, even if the pension holder consents. It is therefore necessary to obtain a further order in England after the overseas divorce proceedings to effectively ‘convert’ the overseas order into an order that can be implemented here.

It is possible to obtain financial orders in England and Wales after an overseas divorce pursuant to Part III of the Matrimonial and Family Proceedings Act 1984 (MFPA 1984). The legislation was intended to allow the English family court to make financial orders when there has been inadequate financial provision on divorce abroad. However, it can also be used to obtain orders necessary to give effect to pension sharing arrangements reached after an overseas divorce.

In order to commence proceedings under MFPA 1984, Pt III, one of the parties to the marriage must have a sufficient connection with England and Wales which is satisfied by it being either the domicile of either spouse on the date of either the overseas divorce or the Pt III application, or it being the habitual residence of either spouse for the 12 months prior to the date of either the overseas divorce or the Pt III application. This is fairly straight-forward where one or other of the spouses continues to have a connection to England and Wales. But this does not help spouses who are no longer habitually resident or domiciled in England and Wales.

This is where EU law can be used, since June 2011, by Chapter II of the EU Maintenance Regulation. This provides the jurisdictional basis for needs based claims. This includes needs-based claims made under MFPA 1984, Pt III. The English court has the power to make a needs-based Pt III order pursuant to Article 7 of the EU Maintenance Regulation on an exceptional basis so long as no other Member State has jurisdiction to make an effective order and so long as proceedings for an effective pension sharing order cannot be brought anywhere else. This is colloquially known as the ‘forum of necessity’, and has been of considerable assistance to international families with no ongoing connections to England and Wales who seek a pension share of a scheme held with a supplier here.

What are the potential implications of Brexit in relation to pension sharing after overseas divorces?

It depends on the terms on which the UK leaves the EU. In the event there is a ‘deal’ with the EU, it is likely that there will be a transitional period until December 2020 or later during which time the EU Maintenance Regulation will remain in force. In those circumstances it would still be possible to obtain pension sharing orders under MFPA 1984, Pt III pursuant to Art 7 up until at least the end of the transitional period. The same applies if Art 50 is extended.

Are there any particular concerns in the event of ‘no-deal’?

Yes. If there is a ‘no-deal’ Brexit on 29 March 2019, then there would be no transitional period and the EU Maintenance Regulation would therefore cease to have effect after the exit date. This would mean that it would no longer be possible to obtain pension sharing orders in England after overseas divorces unless one of the spouses is domiciled here or habitually resident here for 12 months. It would frustrate many overseas settlements and produce unfair and undesirable outcomes for many international families with pensions administered in England and Wales.

As a firm, we have been pressing for appropriate legislative changes to the MFPA 1984 to permit the ongoing jurisdiction to make pension sharing orders after an overseas divorce where there is no other ongoing connection.

What steps should practitioners and their clients be taking to protect their position?

Act fast. If possible, seek to obtain the pension sharing order overseas and then in England prior to 29 March 2019, even if this is just as an interim step in the overseas proceedings pending resolution of the remaining financial matters. Alternatively consider whether it is possible to increase connections with England and Wales in order to give the court the power to make the order based on habitual residence or domicile, although this can have other implications including in relation to tax status and specialist advice should always be taken.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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