Assets - what assets?

District Judge Roger Bird unravels ancillary relief decisions on whether pension fund values should be added to assets

The way in which the courts deal with matrimonial ancillary relief cases is becoming clearer.

The period of uncertainty which followed the decision of the House of Lords in White v White [2001] 1 AC 596 HL has been to a great extent dispelled by the decision of the Court of Appeal in Lambert v Lambert [2002] EWCA Civ 1685 CA; the yardstick of equality is becoming more easily understood and the significance of contributions has been put into proper proportion.

The division of 'family assets' should henceforth be a simpler exercise than hitherto, without some of the sterile forensic exercises to which we have become used.

Assets are assets

But what assets are we talking about? What goes into the 'pot' for division? This question is most acute in the case of pensions.

Put simply, is the cash equivalent transfer value of the pension (the CETV) to be added to the other assets before division in appropriate proportions or should some other method be adopted and the pension hived off as a separate fund to be considered separately? In White, Lord Nicholls adopted the first course, adding the value of the pension to the farming assets to arrive at a global figure.

However, it has to be said that how far that takes us is open to doubt.

Mr and Mrs White had been genuine partners in a farming business; they were both at or near pensionable age and there may have been some justification in regarding the pension as one of the fruits of the partnership.

(Furthermore, it cannot be ignored that the House of Lords did not actually upset the order made by the Court of Appeal).

Nevertheless, additional authority for this approach is provided by the decision of Peter Collier QC (sitting as a deputy High Court Judge) in S v S (Financial Provision: Departing from Equality) [2001] 2 FLR 246 where it was argued that the pension values should be separated from the other assets, but it was held that the court could not differentiate between different types of assets; the judge observed that 'assets are assets'.

Notwithstanding these authorities, the general trend of opinion seems to be in the opposite direction.

In Cowan v Cowan [2001] 2 FLR 192 CA, Lord Justice Thorpe said the husband's fund was 'no more and no less than a whole life fixed rate income stream' and was 'not truly comparable with a cash fund...' This theme was developed by Lord Justice Thorpe in Maskell v Maskell [2001] 3 FCR 296 CA; the circuit judge on appeal from the district judge had aggregated the value of the pension fund with the other assets, which Lord Justice Thorpe described as a 'seemingly somewhat elementary mistake'.

Of the husband's fund only 25% could be taken as capital, the balance having to be taken as an income stream.

The judge had failed to compare like with like.

It is not for this author to say which of these approaches is 'the proper approach' and it may be argued that there are authorities to support either line of argument.

Nevertheless, it seems that there is much to say for Lord Justice Thorpe's approach and that this is the view adopted by most judges and practitioners.

Given that the court will adopt the yardstick of equality as its overall approach, what is the practical effect of these decisions? How will pension CETVs be slotted into the total package? The following are some random reflections, on the assumption that the assets in the case are sufficiently large to enable the capital needs of the parties to be met on the basis of equality.

Conventional practice

The conventional practice is now for schedules of assets to be divided into two parts, namely total assets without pensions and a separate statement of the pension CETVs.

There can be a third calculation to show the total assets including pensions but this does not take matters much further.

The pension figures should be divided to show the sum which might be taken as a lump sum and the date on which that could happen, and the balance which would provide an income stream.

This enables the court to calculate easily what the effect of equal division of assets would be before deciding how to include pensions in the calculation.

The figures could be easily adjusted to take account of any lump sum payable in the foreseeable future.

However, the more difficult calculation lies in achieving justice when the predicted income stream of one party is significantly greater than that of the other.

It may be contended that equality is confined to capital and does not extend to equality of income; once equality of assets is achieved, the parties should be able to go their own way.

Against this it must be said that there has been no authoritative decision on the point and that if the court is trying to be fair it must have some regard to the parties' future incomes.

Any marked discrepancy would be less than fair.

The obvious way to deal with the situation would be a pension sharing order.

But this might be impossible or undesirable for some reason (such as the fact that the more favoured party's pension was unfunded and already in payment) and accordingly, the capital cost of providing the less favoured party with a pension fund, which would equalise their positions, would have to be considered.

At this stage, offsetting would have to be used and the non-pension capital divided unequally.

Duty to intervene

It has to be emphasised that this is not the answer in every case.

When the parties are comparatively young, or the pensions not a high proportion of the overall assets, it may be right more or less to disregard pension values.

However, where it is clear that, in the absence of some pension adjustment, the post-retirement incomes of the parties will be significantly unequal, it may fairly be argued that the court has a duty to intervene.

Of course, different considerations must apply where the assets do not exceed the needs of the parties.

Here, a 'hierarchy of needs' has to be considered, beginning with the welfare while minors of the children of the family.

Housing needs are normally the major concern of the court and may well dictate an unequal division of capital.

Once that happens, pension shares may fade into insignificance.

District Judge Roger Bird sits at Bristol Combined Court Centre