EIM74010 - Pension paid to former spouse
As part of a financial settlement on divorce the courts can
make:
- an attachment order, or
- a pension sharing order
in respect of the pension rights of either partner.
You need to be aware of the statutory provisions that govern
the financial settlement between former partners in order to
establish who is to be charged on a pension.
Attachment orders: Pensions Act 1995
An attachment order allows the courts to order the payment of
maintenance from a pension receivable by one of the partners. When
the member of the pension scheme becomes entitled to receive
payment, the scheme trustees pay the amount specified in the order
directly to the ex- spouse.
The pension remains the income of the scheme member and:
- he or she is chargeable to income tax on the whole amount and
- no deduction is available for the amount paid under the attachment order.
The pension received by the non-scheme member ex-spouse is tax-free in his or her hands. An attachment order may also be referred to as an earmarking order.
Pension sharing: Welfare Reform and Pensions Act 1999
The law changed in 2000 to allow the pension rights of an
employee to be shared with the ex- spouse as an alternative to an
attachment or earmarking order. Under the new provisions, some or
all of the employee's benefit rights are passed over to the
ex-spouse. This allows the ex- spouse to receive benefits in his or
her own name.
The pension sharing provisions can be applied in divorce
proceedings that commence on or after 1 December 2000. Pension
rights can be shared under all types of pension arrangements. The
Court will actually make an order stating how much of an employee's
pension benefits must be shared with the ex-spouse, although in
some cases, in particular Court orders under Scottish law, the
pension sharing will be set out in a legally recognised "qualifying
agreement" between the divorcing couple.
Under these provisions, the ex-spouse will be entitled to
receive a pension, which will be taxable in his or her hands.
