Separation Agreements and Pension Rights

It has only been 12 years since the option of seeking a divorce has being available to separated couples in Ireland. However as everyone knows, married couples have been separating from each other long before specific legislation was ever enacted.

Ignoring divorce, there are essentially 2 ways that a married couple can separate in Ireland. The first is by way of Separation Agreement, which as its name would suggest is an agreement or contract, which both formalises and regularises both the fact of separation and the terms and conditions of that separation. This has traditionally been the most common method of dealing with a separation but is only ever appropriate in circumstances where neither party is a member of a pension scheme. A Separation Agreement cannot deal with an individual’s pension rights, and in particular cannot bind the trustees of a pension scheme notwithstanding the fact that the Separation Agreement itself may specifically make reference to the issue of pension rights.

The difficulty with Separation Agreements purporting to deal with pension rights was compounded following the landmark Supreme Court decision of P.O’D v A.O’D [(1998) 1 I.L.R.M. 534], which confirmed that parties that had entered into a Separation Agreement could not then seek a decree of Judicial Separation to deal with pension rights. As such unless the parties were to subsequently divorce, the issue of pension rights potentially remains unresolved, and moreover unenforceable.

The second method of separation is by way of a Judicial Separation application, which means that the matter will be dealt with through the Courts. However, this does not necessarily mean that the matter must be contested through the Courts and it is important to remember that this method of separation does not preclude the parties from coming to an agreement as to how and on what terms they shall separate at any point in the proceedings. Any such agreement (with the approval of the Court) will have the dual benefit of being made an Order of the Court and more particularly will bind the trustees to a pension scheme.

At the time of granting a decree for Judicial Separation, the Court may also make a Pension Adjustment Order which will set out the future arrangements for an individuals pension rights or establish what share (if any) of an individuals pension rights the other spouse shall receive on both a retirement and contingent basis. The trustees to the pension scheme will be fully bound by this Pension Adjustment Order and will be legally obliged to comply with it’s terms.

[Example, John and Mary have been married for 25 years. John has been employed with the same company since they married and is a member of the company pension scheme at work. John’s pension scheme entitles him to a significant lump sum payment on retirement, and a monthly pension income payment of circa 50% of his current gross salary. Mary has worked in the home since marriage and although has often thought about establishing a private pension scheme has never done so and as such has no pension scheme herself. They are now separating and wish to regularise all matters as between themselves at this stage.

Neither party has any intention of remarrying nor do they want to deal with the separation through the Courts. After some negotiation they have agreed that John shall live in another property that they own and Mary shall continue to reside in the family home. Mary shall receive a maintenance payment from John and furthermore she will also receive a share of John’s monthly pension payment following retirement. John shall retain the lump sum payment on retirement for himself. A Separation Agreement is signed by both of them, which expressly sets out the agreement reached regarding the split in John’s pension scheme. No application to the Courts is ever made.

Some years later John retires and receives his lump sum payment from the pension scheme. He plans to sell his house and move to Spain. He cancels the maintenance payment to Mary that he had been making and requests that his monthly pension payment be split in accordance with the Separation Agreement, with his portion to be paid direct to his Spanish bank account. He leaves Ireland for Spain assuming that all matters have been attended to. However due to the fact that no Pension Adjustment Order was ever made, the trustees will not apportion the pension payment and as such all payments are made to John directly. John receives his pension payment in Spain and whilst pleasantly surprised at the amount received, thinks nothing further of it.

Mary doesn't receive her pension payment as expected and when she contacts the pension scheme is informed that she will not receive any payment from them notwithstanding the Separation Agreement. Mary must now initiated Divorce proceedings against John who is now resident in Spain to attempt to get the pension payment in accordance with the Separation Agreement. This is both an unsatisfactory and unnecessary application to the Courts which is complicated further by the fact that John is now resident outside of Ireland]

Whether one spouse is entitled to share in the others pension benefits will of course be entirely dependent on the facts of the individual case. As such it is advisable to say the least to obtain legal advice at the time of separation to ensure that all matters are correctly dealt with.  It is difficult at the best of times to go through a separation, but a lot harder to have to relive the experience at a later date in an effort to regularise pension entitlements.

Finally, there is perhaps a surprisingly large number of separated couples who although may have been separated for a considerable period of time have neither signed a Separation Agreement nor have they ever applied for a decree of Judicial Separation. These people may well consider themselves to be “separated” due to the passing of time, but the law on pensions (and indeed property and succession rights) clearly maintains a different position. It is imperative that a separation be formalised in order to ensure that each party’s rights or entitlements following separation are both adhered to and enforceable.