The chances of your spouse passing away during the divorce process may sound an unlikely scenario – but it could happen. So, what do you need to know?
Pensions are always a complicated area in financial remedy proceedings; there are many different types of schemes and many different types of investments. It is important to make sure that the specific pensions relevant in your case are considered when contemplating divorce and financial proceedings.
If the scheme holder passes away will the pension be assigned to the spouse / dependent?
Most schemes will have some provision for the pension to be paid, in whole or in part, to a dependent in these circumstances. Some schemes will automatically assign that dependent as being the spouse of the scheme holder, although some will require direct input from the scheme holder as to who the named dependent should be.
If the scheme holder passes away, the named dependent or the assigned dependent may receive a pension from that scheme in those circumstances. You should not be surprised if a spouse’s or dependent’s pension is significantly lower than the scheme holder’s pension benefits.
When parties divorce, the former spouse is no longer entitled to widow’s / widower’s pension rights in relation to their former spouse’s pension schemes. This means that the dependent’s pension would not be paid to that ex-spouse. In some circumstances the dependent’s pension vanishes entirely, in other circumstances the scheme holder has the option of nominating another dependent to whom it could be paid.
This set of events means that in relation to pension benefits, there is a unique risk on applying for the final Decree in a divorce if pensions have not been addressed.
Why is this?
All assets other than a pension that a person has form part of their estate. This means that if a former spouse (or current spouse) has not had the opportunity to secure a financial order on divorce or separation, they can make similar applications against the estate of the deceased spouse for provision. In relation to capital and assets, the spouse would be in a similar position either in financial remedy proceedings if their spouse is living, or in Inheritance Act proceedings if their spouse has passed away.
However, pension benefits do not fall into the estate of a person who has passed away, they are disposed of outside the estate. If one party was to pass away, the other party – if divorced – will lose their right to claim any share of the pension and may not be entitled to any dependent’s pension provision, due to the fact that the divorce has been finalised.
The Family Law Company will always recommend that a financial order is made by the Court before the parties secure the final Decree of divorce. This protects both parties in the unlikely event of one of them passing away before the financial proceedings conclude. Any widow’s / widower’s pension rights that are in place in respect of any pension schemes remain in place – and therefore could still be accessed and benefits not lost. Whilst the chances of one party passing away during financial remedy proceedings are probably unlikely, there is little reason to run that risk unless there is a more compelling reason why one party wants to have the Decree Absolute straight away (if for example they are remarrying).
Pension Sharing Order
It is also important that if a Pension Sharing Order is made there is a delay of at least 28 days between the making of that Pension Sharing Order and the Decree Absolute finalising the divorce. This is because pension companies have a set period of time from the making of a Pension Sharing Order to registering any objections with the Court – and again there is always the very unlikely possibility that a Pension Sharing Order could be made and then the spouse pass away between that date and the date on which the pension company loses their right to make representations on the Order. If the Order is unenforceable for some reason and if Decree Absolute has been pronounced, the surviving spouse may lose some entitlement.
We recognise that this is a very complex area with many potential pitfalls. This is why your specialist lawyer should always advise you as to the implications of the pension rules in your particular case. If you wish to discuss pensions on separation in more detail please do not hesitate to contact us on 01392 421777 to arrange an initial free meeting to explore your concerns.