To discuss how pensions are shared on divorce, we must first start with understanding the principles on which divorce law is built.
What is matrimonial property?
The sharing principle attaches to matrimonial property. The principle states that where property has been acquired during the relationship as a consequence of joint endeavour, it is to be considered as “matrimonial”, and the starting point should be that it is shared equally.
What is Matrimonialisation?
In the Supreme Court’s decision in the case of Standish it was determined that non-matrimonial property can become matrimonial through a process the Court has labelled as “matrimonialisation”. The test to determine whether an asset has been matrimonialised is to assess how the parties have treated the property, and how the parties intended to share it, rather than when it was acquired or by whom. For example, was the property regularly used for family purposes or treated as part of the shared marital wealth? Were promises made, or instructions given as to how to share it or otherwise deal with it?
See here for more detail on the Standish case.
Why are pensions different?
Pensions are inherently different from other capital assets in that:
- They are illiquid
- They cannot be owned jointly; and
- They cannot be accessed until age 57 or later; and
- They are often not available to the ownerbefore separation, and
BS v HC 2026 – Can an untouched pension become matrimonial?
The couple were both in their 60s, with a marriage of c. 15 years from 2009 until their separation in 2024.
The greatest point of contention in the matter was how to share the value of the husband’s pension of £3.06million in circumstances where the wife’s pension was valued at just £35,000.
Predictably, the main questions were:
- how much of the husband’s pension was matrimonial; and
- to what extent any pre-marital pension should be treated as matrimonialised.
HHJ Hess was asking “whether an asset that began as non–matrimonial had, over
time, been treated by the parties as shared, such that it had become matrimonialised”.
Does the fact that the pensions had been untouched mean that there had not been Standish style actual use / enjoyment?
At paragraph 34 of his judgement, HHJ Hess references the Standish decision and states that “Rights in a pension, unlike cash or property, rarely become ‘mingled’ during a marriage.”
However, the fact that they rarely become mingled, or may not be actively used or enjoyed during a marriage, was not, he found, sufficient to mean they could not become matrimonialised.
The Court’s Decision in BS V HC
In this case the court was not persuaded that the husband’s pre-acquired pension was matrimonial.
However at [34] HHJ Hess confirmed his view that “a common intention to put the asset into use and enjoyment in the future could … give rise to matrimonialisation if that intention was relied upon by the other party to his or her detriment”.
The language as to “intention” and “detriment” speaks to concepts more commonly associated with proprietary estoppel and constructive trust.
What does BS v HC mean for pension sharing on divorce?
The immediate significance of BS v HC lies less in its outcome than in the questions it raises.
Q. What does “matrimonialisation” actually look like in the context of pensions?
A. Matrimonialisation may not require the actual use or drawdown of the fund but rather just a shared intention to enjoy the asset jointly in the future, combined with reliance by one spouse.
Commonly this reliance may have led to one party not investing in a pension of their own during the relationship in anticipation of sharing the pension investment of their spouse on retirement.
To date, the test as to whether an asset is matrimonial is as above: Was the asset acquired during the relationship, to include the period of any pre-marital cohabitation, as a consequence of joint endeavour.
It was not dependant on intention or detriment. If the court is now prepared to consider intentions and reliance when determining the question of matrimonialisation, the evidential consequences could be significant and couples may increasingly be asked to examine past conversations, historic financial planning decisions, and promises given and assumptions made during their marriage when considering how to fairly share their assets on divorce.
Can a pre-marital pension be protected?
Are we moving towards greater protection of pre-marital pension wealth? Will it become easier to avoid matrimonialisation simply by denying any intention to share? Or easier for the other party to run a matrimonialised argument based on “pillow talk” conversations about retirement plans?
The outcome of BS v HC suggests a judicial willingness to preserve the non-matrimonial status of pension assets that accrued before marriage and which have remained segregated throughout.
Yet the judgment simultaneously leaves open a route by which such pensions could still be subject to the sharing principle where evidence exists of a shared understanding that they would ultimately benefit both parties.
Practical considerations
The decision also raises a number of questions for practitioners.
Will we now see arguments made that one spouse chose not to maximise their pension provision due to an expectation of sharing their spouse’s pension on retirement?
Will parties seek to rely on throw-away comments made decades earlier about “sharing everything” in retirement?
Could narrative explanations within Form E become increasingly important in evidencing how pension wealth was viewed during the relationship?
Some may argue that this approach risks encouraging a more detailed forensic examination of the history of the marriage. Rather than narrowing issues, it may incentivise parties to “rummage through the attic of the marriage” in search of conversations and conduct capable of demonstrating intention, reliance and detriment.
This decision appears to create an interesting tension between the drive towards simplifying financial remedy proceedings, by introducing formulas and codification into statute, and complicating this area of law by adding new judge-led considerations.
Key takeaways
Ultimately, any financial settlement on divorce must pass the legal test of fairness.
As such, even if a pension (or any other capital asset) is deemed not to have been matrimonialised, it might still be fair to share the value if required to meet needs.
As such, and in order to try and regulate how to share your assets on divorce, particularly if the focus is to shift from the provenance of the asset to what the parties understood its future role to be, it seems likely that prenuptial agreements will become more important; both to record the parties “separate, non-matrimonial property” at the time of entering into the marriage but also to detail their intentions as to the matrimonialisation and or sharing of those and any future assets.
Whether this ultimately brings greater clarity or simply creates a new battleground remains to be seen. What is clear is that BS v HC represents one of the first significant attempts to apply the commentary in Standish as to “intentions”, to the treatment of pensions on divorce.
As such, taking positive steps to protect your pension with a prenuptial or postnuptial agreement will therefore be as valuable as avoiding making promises to a loved one of future generosity and sharing that you would rather not be reminded of should your relationship break down.
Contact the family team to discuss pensions on divorce, nuptial agreements, and more.
