DECIDING WHO GETS WHAT IN THE DIVISION OF ASSETS FOLLOWING DIVORCE CAN BE FRAUGHT WITH OBSTACLES.

NOW, AS ROGER BAMBER REPORTS, THE WELFARE REFORM AND PENSIONS ACT 1999 HAS INTRODUCED THE CONCEPT OF PENSION SHARINGThe Welfare Reform and Pensions Act 1999 (WRPA) introduces a new financial remedy on divorce - pension sharing.

This will be available where a petition for divorce or nullity is filed on or after1 December 2000.

It is not available upon judicial separation and is only effective after a court order.For the first time, the value of a pension scheme member's rights can be transferred to his or her spouse.

The transferee will then have an indefeasible pension in his or her own right.An earmarking order - in which the partners agree to share the pension - may still leave the unpensioned partner with nothing if the pensioned partner dies before retirement.

This drawback is largely avoided under the new system, since the transferee's new pension benefits are entirely independent, and the transferee can make nominations or choose when to retire without reference to the other spouse.As a concept, it appears straightforward on the surface.

But practitioners and their clients will soon be faced with difficult, practical choices and some complex legal concepts.

The help of independent financial advisers will be needed, both in working out the detailed needs of the parties involved, and advising on and arranging the new pension fund for the transferee.A new s 21A, introduced into the Matrimonial Causes Act 1973 (MCA), states: 'A pension-sharing order is an order which provides that one party's shareable rights under a specified arrangement, or shareable state scheme rights, be subject to pension sharing for the benefit of the other party.'The 'shareable rights' include benefits arising under occupational pension schemes, personal pension schemes, retirement annuity contracts or annuity or insurance policies purchased or transferred for the purpose of giving effect to rights under an occupation pension scheme or a personal pension scheme.

The State Earnings-Related Pension Scheme (SERPS) and any shared additional pension - rights derived from a pension share in respect of previous family proceedings - can also be subject to a pension-sharing order.

However, the basic state pension cannot.Some limited public service pension schemes are excepted from the new law and certain benefits are excluded by regulation, such as survivors' benefits, injury benefits, compensation payments, and some incidental payments like travel concessions.The court order must specify what percentage of the pension member's rights is to be transferred.

This will be expressed as a percentage of the cash equivalent transfer value (CETV) - the same method of valuation as has been used for earmarking orders (The Divorce etc (Pension) Regulations 2000, reg 3 and The Pensions on Divorce etc (Provision of Information) Regulations 2000, reg 3).

The transferor's shareable rights then become subject to a debit of the appropriate amount, and the transferee becomes entitled to a corresponding credit of that percentage value.For example, a husband has an occupational pension scheme in which his benefits have a CETV of £100,000.

A pension-sharing order is made transferring 40% of hi s CETV to his wife.

His pension scheme is debited by £40,000.

The wife receives a credit, so that she gains a pension fund of £40,000 in her own name.The new s.24B(1), MCA 1973 (inserted by sched 3, para 4 of WRPA) states that one or more pension-sharing orders in relation to the marriage may be made 'on granting a decree of divorce or nullity of marriage or at any time thereafter'.

It appears from this wording that a pension-sharing order can be made against different pension arrangements, or even against the same pension arrangement if the previous pension-sharing order related to a prior marriage.

For example, if a husband has an occupational pension scheme which is subjected to a pension-sharing order in favour of his first wife, his second wife on her divorce would also be able to obtain a pension-sharing order against the same scheme.Importantly, it will be possible to apply for a pension-sharing order when maintenance is varied.

S.31(7B), MCA 1973 has also been amended, though as with the rest of the new law, this provision will not be retrospective.

A pension-sharing order cannot take effect unless the decree has been made absolute (MCA s.24B(2)).

Furthermore, a pension-sharing order may not take effect earlier than seven days after the end of the period for filing a notice of appeal against the order.

If a notice of appeal is filed, the order may not take effect before the appeal has been dealt with.In contrast to earmarking orders, pension-sharing orders cannot themselves be varied if the decree nisi has been made absolute or if the order has taken effect.

This may be a material consideration when choosing which remedy is appropriate.

For example, a solicitor acting for a pensioner who anticipates that his spouse may receive a substantial inheritance or remarry prior to retirement may prefer to offer an earmarking order against the commutable lump sum, which could be varied in those circumstances rather than a pension share which could not.Turning to internal and external transfers.

The transferee who receives the pension credit may either become a member of the relevant scheme ('internal transfer') or the pension credit may be transferred to another scheme or policy ('external transfer'.) Different rules apply to different schemes, as to which of these options is followed.If the scheme against which a pension-sharing order is made is a funded occupational scheme, the transferee can demand an external transfer; although the pension providers can offer an internal transfer in such schemes, the likelihood is that they will only offer an external transfer.

Where the pension-sharing order relates to a personal pension policy, again the transferee can demand an external transfer.

However, only an internal transfer is possible if an unfunded public service scheme is involved, unless the scheme is closed to new members.Take a pension-sharing order made against a husband's funded occupational pension scheme for 30% of the CETV.

His wife is not a member of an alternative scheme.

With the help of an independent financial adviser (IFA), she chooses a personal pension policy, which is then credited with the 30% CETV by way of an external transfer.What about the cost? Although pension schemes have to bear their own costs in setting up internal computer systems to deal with the administration, the parties themselves have to bear the cost involved in the specific application for a pension-sharing order.

The Pensions on Divorce etc (Charging) Regulations 2000 (reg 2(6)) state that the person responsible for a pension arrange ment may only recover those sums which represent the reasonable administrative expenses which he has incurred or is likely to incur.

The pension provider has to be clear about what those charges are going to be.The likely range of charges is expected to be between £750 and £1,000.

These charges, and the associated costs of instructing an IFA to say nothing of the increased legal costs, may make the choice of pension sharing unviable in certain cases.

If the value of the pension is below, say, £10,000, the charges involved may be disproportionately high.

Clients will need clear advice about this when considering what remedies to pursue at the outset of their case.Concerning other changes, as from 1 December, earmarking orders must also be expressed in percentage terms.

Orders made against commutable lump sums, for example, should express the percentage that is to be earmarked.

In cases where ongoing maintenance is payable, it may be helpful to specify that a zero per cent commutable lump sum should be paid, if keeping the pension income high is a priority.An earmarking order may not be made in relation to a pension arrangement which is already the subject of a pension-sharing order.

As noted above, because of the wording of the statute, this restriction only applies to a pension-sharing order relating to the marriage in question.Similarly, a pension-sharing order may not be made where there is in force an earmarking order in relation to a particular pension arrangement (whether or not the earmarking order relates to this or any previous marriage).

It is important to note therefore, in cases where there is an ongoing maintenance liability, if the payee chooses to have an earmarking order against the death in service lump sum (s.25C MCA), then it will not be possible on varying the maintenance to ask for a pension-sharing order under s.31(7B) MCA.Other changes include:-- a spouse who applies for a pension-sharing order may also apply for an order under s.37 MCA;-- unless proceedings were begun before 1 December 2000, it will no longer be possible to apply for a Brooks order;-- it will be possible to apply for both pension-sharing and earmarking orders under pt 3 Matrimonial & Family Proceedings Act 1984, and;-- the WRPA contains changes in relation to pensions and bankruptcy, in particular rights under an approved pension arrangement are excluded from the bankrupt's estate (s.11 WRPA 1999).The remedy of pension sharing will need to be considered with ongoing maintenance, lump sum, and property-adjustment orders.

It will not be appropriate in a great many cases, for example when the divorcing couple are young and after short marriages.

Clearly, the cost involved will be an important factor in deciding whether it is appropriate in any particular case.But for many couples, pension sharing will enable them to become independent at the time of divorce.

For them, the additional resources that can be reallocated may make a clean break possible on divorce.The complications of earmarking pension lump sums and income, such as the uncertainty of the retirement date or the risk of the pensioner dying, are avoided.

In many cases, where wives take out new personal pension policies for themselves, they will have benefits which are under their own control.PENSION-SHARING - KEY FEATURES-- Available where petition for divorce/nullity filed on/after 1 December 2000;-- Not available after judicial separation;-- Only available after court order;-- Orders can be made against pensions in payment;-- Pension sharing and ear marking mutually exclusive in most cases;-- Not retrospective.ROSEMARY CARTER URGES SOLICITORS TO GIVE CLIENTS SOUND ADVICE IN DIVORCE SETTLEMENTSThe imminent arrival of pension sharing has been anticipated with all the excitement of a product launch.

'New improved' pension sharing may, indeed, tackle the areas offsetting and earmarking could not reach.Offsetting of one partner's pension share against other assets is flawed in that it may leave one person with no pension arrangements and inadequate assets to offset by way of compensation.

Earmarking is tied to the pension-holder's life and thus prevents a clean break.

However, despite these flaws, the existing arrangements will, for some couples, continue to offer the best solution for their particular circumstances.Of course, the government is right to encourage us all to make adequate arrangements for a secure retirement.

But solicitors should still be focusing on giving the best advice to clients on negotiating divorce settlements according to their particular priorities.

While flexibility is to be welcomed, pension sharing should, therefore, be seen for just what it is - yet another tool to help construct a fair solution between the couple on divorce.Excited by the idea of deadlines to be met, the media is advising people to speed up or slow down their divorces to avoid or benefit from the new arrangements, dependent on their status.

In one of life's most stressful experiences, divorcing couples are unlikely to be well served by the need to fit their arrangements around an administrative timetable.

If someone is served with a petition by a spouse hoping to avoid pension sharing, all is not necessarily lost.

Unless a decree nisi is made before 1 December - which is now unlikely - they could simply issue their own petition after that date and ask the court to give directions to consolidate.

It is almost certain that the court will allow this approach because it will enable fairness to be achieved in relation to pensions.The issue for family lawyers is whether they are sufficiently well informed to advise on the implications of the range of choices relating to pension arrangements.

Greater flexibility has brought with it greater complexity and the challenge for solicitors will be to help the client to identify the most suitable set of arrangements without falling victim to 'pension tunnel vision'.

The involvement of an independent financial adviser (IFA) will be crucial to help evaluate the best solution to the pensions problems in each particular case.In the new framework, solicitors will need to obtain the facts about pension arrangements and other assets from information provided voluntarily or following the issue of financial proceedings as early as practicable.

The cost of this fact-finding exercise needs careful consideration by solicitors and clients to ensure that it is proportionate to the couple's assets and income.Having ascertained the facts, the next step should be to consider the issues as they are seen by both parties and to consider the possible solutions.

Pension sharing should be considered alongside the other options, but it will also be essential to consider offsetting the other assets and comparing the possible solutions.If pension sharing is the outcome of this exercise, then the question arises over whether an internal transfer is available and, if so, should the client opt for an internal or external transfer of their share of the fund? If an external transfer is preferred, to what pension arrangement should they transfer? These sorts of co nsiderations will take solicitors into a new realm and the role of the IFA will be crucial, given the long-term importance of these decisions.

A record of the advice given to the client should be kept carefully on the file.As well as the additional costs of financial advice, it should also be remembered that there will be costs connected with internal and external transfers from the fund.

An external transfer may be cheaper, but there will also be additional costs involved in setting up the new pension.For solicitors, there will be a number of important procedural factors to consider when navigating these uncharted waters.

Crucially, if a client wishes to proceed with a pension- sharing order, then the best practice will be to prepare a draft order and submit it to the pension provider for consideration.

This will avoid orders which are incapable of implementation being made by consent or following a hearing by the judge.The Minister of State for Social Security, Jeff Rooker, says every one of the estimated 160,000 couples who will divorce next year will need the help of a lawyer to ensure they are getting the fairest settlement possible.

This is undoubtedly true as pension sharing adds significantly to the complexity of the advice each member of each of these couples will need.

However, their access to reliable and constructive advice on divorce is developing into a key issue in family law.Many of these estimated 160,000 couples will be dependent on funding from the Community Legal Service and some will struggle to find local solicitors who are willing to work for them on this basis.

Those solicitors who do publicly funded work must be able to justify their additional work in weighing up the pension options, and these costs will need to be met to avoid a further progression to a two-tier service for some clients.While Mr Rooker acknowledges that good legal advice is necessary, he now needs to convince his colleagues in the Lord Chancellor's Department to provide the funding to enable all divorcing couples to have the benefit of that advice.JEFF ROOKER EXPLORES THE IMPLICATIONS OF PENSION SHARING AND REFLECTS ON PREVIOUS OPTIONSA lawyer is talking to his client.

He says: 'I have some good news and I have some bad news.' The client says: 'I could use some good news.

What is it?' The lawyer replies: 'The good news is that your ex-wife is not making you pay for any money you inherit.' 'That's great,' says the client.

'What's the bad news?' 'The bad news is that she's marrying your father.'Okay, so it's a bad joke.

But it makes the point that in a divorce, it usually takes at least three people to bash out a settlement: the husband, the wife, and the lawyer.

So, it is vital that family lawyers keep abreast of developments in their field and one of the most important concerns pension sharing and divorce.I'm sure many solicitors will have already read various articles exhorting couples on the verge of divorcing to rush to file papers before or after 1 December 2000, depending on their personal circumstances.

Some lawyers might even be experiencing a marked increase in clients as a result of the hype that has surrounded the pension-sharing and divorce legislation.

But when you come down to the nuts and bolts, the legal minutiae, how will practitioners of family law be affected by this new legislation?For the answer, we need to return to 1999, when the Welfare Reform and Pensions Act was passed into law.

The act provided for the courts to order, in the event of divorce or nullity, that the pension entitlements of a couple be shared between them.Before explaining why the government considered it necessary to introduce this legislation, I should first clarify a few points.

Firstly, it will not be compulsory.

It is up to the couple to decide, with the help of their lawyer, whether pension sharing constitutes the fairest way of dividing their assets.

Secondly, where pension sharing is implemented, this does not necessarily mean that pension rights will be split equally between both parties.In some cases, a 50:50 split may well be judged the most equitable.

But it should be stressed that pension sharing must be viewed as part of the bigger picture when it comes to dividing assets.Before December of this year, divorcing couples had only two options when it came to pensions.

In option one, the unpensioned spouse would end up offsetting the value of their share in the pension pot against something else, usually property.

On the plus side, this meant that couples made a clean break with their financial arrangements.

But a large minus was that one spouse could end up with no pension in retirement.This was less of a problem if the unpensioned spouse could free enough equity from the sale of the property to pay for another, cheaper property and have some cash left over to live on.

But it was still often far from ideal.In option two, the couple could agree to share the proceeds of the pension when it started paying out.

This process, called 'earmarking', was introduced as part of the Pensions Act 1995.

But it too can have a number of drawbacks.The problem with earmarking is that no one can predict whether the spouse with pension will outlive the unpensioned ex.

In the event that he or she does not, the dependant spouse could again end up with no income in retirement.

Moreover, a further drawback of earmarking funds in this way is that it necessitates a divorced couple having to keep tabs on each other for the rest of their lives.As people who see the stressful effects of dealing with a divorce every day, solicitors appreciate how important it is for both parties to move on as swiftly as possible, make a fresh start, and put the past behind them.

Which is where this new legislation comes in.From 1 December, anyone starting divorce proceedings or applying to have a marriage annulled will be able to share the pension rights as part of the matrimonial settlement.I know lawyers rarely read anything that does not contain caveats, so let me just offer a reminder that pension sharing will not apply in cases of judicial separation, to cohabiting couples or to same-sex couples.But this does not mean that every eligible couple has to go down the pension-sharing route.

For example, younger couples with relatively short-lived marriages and only a small amount in their pension funds may well choose to continue offsetting their pension rights against property.But what this legislation does is give every divorcing couple the maximum flexibility in deciding how best to deal with matrimonial assets during a divorce.

And it helps unpensioned spouses who are getting divorced after many years of marriage to rest secure in the knowledge that they will not have to start from scratch when saving for their retirement.Also, we have been mindful of keeping the cost of pension sharing down to a minimum, which is an important consideration as it is the divorcing couple themselves who will have to meet the expense.It is to be hoped that this will all help to make what is a painful process at the best of times as painless as possible.

On current trends, we estimate that there could be as many as 160,000 couples divorcing next year and they will need the help of a lawyer to ensure that they are getting the fairest settlement.