The Supreme Court judgement in the case McDonald v McDonald follows a dispute which arose regarding the proportion of a pension that could be considered a matrimonial asset for divorce purposes.
In this case the issue was whether the period of membership or simply “active membership” of the pension scheme should be included in the matrimonial pot.
The case
Mr McDonald was a miner and a member of the Coal Board pension scheme which he joined in December 1978. He married Mrs McDonald in March 1985 and took early retirement in August 1985 following a workplace injury. The couple separated in September 2010.
Legally, the value of pension interests attributable to the period of the marriage forms part of the matrimonial pot. However, the dispute arose about the approach to take in the circumstances of this particular case.
It was argued that it was the period of “active membership” of the scheme (from 1978 to August 1985) that should be used which gave a value for divorce purposes of just over £10,000 for the pension. The alternative was that it was simply the period of membership that should be used, the period from joining in 1978 until the separation date in September 2010, which gave a value of £138,534 for divorce purposes.
Both the Sheriff at first instance and the Inner House on appeal had preferred the active membership approach to the pensions regulations.
In coming to the decision the Supreme Court considered the interpretation of both the Family Law (Scotland) Act 1985 and the Divorce etc. (Pensions) (Scotland) Regulations 2000.
Taking account of the framework for financial provision in the 1985 Act and the specific terms of the pensions regulations, the court concluded that it is the period of membership (active or otherwise) that should be used.
The court held that the focus of the framework in the 1985 Act dealing with pensions is to share the proportion of rights or interests in a pension scheme attributable to the period between the date of marriage and the date of separation. This could mean either increased value due to contributions or simply passive growth of the scheme in that period.
The law
The court looked specifically at Regulation 3 and Regulation 4 of the Pensions Regulations.
Regulation 3 sets out how the pension scheme should calculate the Cash Equivalent Transfer Value (CETV) for divorce purposes. This regulation distinguishes different categories of membership in occupational schemes.
Regulation 4 contains the formula for apportionment. It states:
“The value of the proportion of any rights or interests which a party has or may have in any benefits under a pension arrangement or in relevant state scheme rights as at the relevant date and which forms part of the matrimonial property by virtue of section 10(5) shall be calculated in accordance with the formula - A x B/C - where A is the value of these rights or interests in any benefits under the pension arrangement which is calculated, as at the relevant date, in accordance with paragraph (2) of regulation 3 above; and Page 9; B is the period of C which falls within the period of the marriage of the parties before the relevant date and, if there is no such period, the amount shall be a zero; and C is the period of the membership of that party in the pension arrangement before the relevant date.”
It does not distinguish different categories of membership.
The judgement
The Supreme Court took the view that the suggested interpretation of the Regulations to restrict the membership to “active” only involved reading words into the Regulations that were not there. Regulation 4 applies to all schemes so this simply does not make sense as the concept of active membership is restricted to occupational schemes. The approach to pensions as matrimonial property is set out separately in the 1985 Act. Lastly, the fact that B in the formula for apportionment could be zero according to Regulation 4 meant that the suggested restriction of the meaning of membership was not logical.
It therefore concluded that the whole period of membership during the marriage whether as an active contributor or a recipient of income under a scheme or passive growth during the marriage, all count.
The Supreme Court added however that this did not necessarily mean the pensions must be shared equally in all cases. The principles that allow unequal sharing may apply and there may also be special circumstances justifying a departure from equal sharing in a particular case.