Pension rights that have been accrued in overseas territories by divorcing parties present a number of challenges for practitioners where proceedings take place within this jurisdiction. This article explores some of the pitfalls that might arise and the issues that practitioners need to consider.

In the first instance, our recommendation continues to be to consult PAG’s A Guide to the Treatment of Pensions on Divorce. The wording on these matters was refreshed slightly for the 2nd edition, published in early 2024. The authors were members of the reconvened PAG and thus contributors to the 2nd edition.

We begin by considering what is meant by ‘overseas’ in the context of pensions. The ‘England and Wales’ jurisdiction is taken to include Northern Ireland, but with Scotland being subject to its own laws on this subject. Pensions law is a UK-wide jurisdiction and so while family law practitioners in England will seek to avoid matters pertaining to Scots law, there is rarely an issue with the serving of a pension sharing order (PSO) from an English court over a pension scheme that is based in Scotland. (In particular, it is noted that the Armed Forces Pension Scheme is administered by Veterans UK in Glasgow, but this has not prevented ‘English’ pensions being shared without issue over the years.)

Instead, what is meant here are jurisdictions outside the United Kingdom in which one or both parties to a divorce may have worked for some time, in turn accruing pension rights. This might take the form of defined benefit rights (a promise to pay a certain per annum pension in retirement), defined contribution rights (being a fund in the individual’s name, but with no underlying pension promise) or overseas state pension provision (e.g. the so-called ‘1st Pillar’ of old age provision that accrues in Switzerland and is mandatory for all residents).

In general, overseas pension rights are incapable of being shared pursuant to an order made under Matrimonial Causes Act 1973 (MCA 1973), s 24B. There may be some very limited exceptions to this, primarily in respect of pseudo-British jurisdictions such as the Channel Islands and Gibraltar, but beyond this it should not be accepted that any such order will be binding over a pension scheme that is based outside the United Kingdom.

In financial remedy proceedings, a wife applied for a PSO in respect of her husband’s interest in an Indian pension fund which provided an annuity. A judge had ordered the husband to transfer his interest to the wife. The order was to no avail. In Goyal v Goyal (No 2) [2016] EWFC 50, the court set aside the whole order, including a declaration as to the husband’s beneficial ownership of the pension fund. It was held as follows:

(1) It had long been accepted that property adjustment orders could be made in respect of a foreign property or nuptial settlement trust provided that there was clear evidence that such an order would be likely to be enforced by the foreign court. The question was whether a PSO fell into that category. A literal reading of Welfare Reform and Pensions Act 1999, s 46(1)(d) did not displace the presumption against the extra-territorial effect of the MCA 1973. The application of the presumption to the powers under s 24B seemed to be an inescapable reading of the legislation as a whole, and was reinforced by the procedural rules applicable to pension sharing. Those rules, devised in collaboration between government officials, family law professionals and the domestic pensions industry, could only work in the context of the sharing of domestic pensions.

(2) The procedure was set out with clarity in Pensions on Divorce (2nd edn, 2013, Sweet & Maxwell, with it being noted that the 4th edition of the handbook has now been published by Class Legal). In summary: (a) in every case involving pensions, regardless of whether pension sharing was specifically sought, the parties had to provide basic information about the pensions that the pension providers were obliged to supply; (b) if sharing was sought, the application had to be served on the providers; (c) at the first appointment, the court could direct the parties to file and serve a pension enquiry form, which the provider was obliged to complete; and (d) when making a PSO, the court had to append a pension sharing annex which gave detailed instructions to the provider as to how the sharing should be effected. The annex would specify the sharing percentage, as required by MCA 1973, s 21A(1)(b). The award could not specify a liquidated sum, only a percentage. Pension sharing pursuant to s 24B was not therefore available in relation to an overseas pension (Goyal at [17]–[29]).

It is noted also that in some jurisdictions, there is exclusivity. They will not entertain ‘mirror orders’ to replicate the intention of the English court in terms of sharing such pension provision. Again, Switzerland operates under an exclusive jurisdiction provision pursuant to the Swiss Federal Act on Private International Law. For example, if the English court were to determine that the English pensions are shared x and y between the parties and the Swiss pensions are shared a and b between the parties, the Swiss court will not recognise nor enforce the English decision.

Even if the limited exceptions set out above are overcome, it is noted that the implementation of any such overseas order is likely to be difficult. Pension sharing orders as applied to UK-based schemes permit the transfer of pension assets from one registered arrangement to another, but any attempt to repatriate a pension credit from an overseas pension to the United Kingdom is expected to give rise to this being treated as a fresh contribution, rather than a transfer. In turn, it is expected that such monies would be tested against the Annual Allowance, which is at present £60,000 per annum, with a punitive tax charge being applied on amounts contributed after this.

In general, defined contribution rights are likely to be the easiest to deal with, on the grounds that these will take the form of funds held in the name of one of the parties, albeit most likely expressed in a currency besides pounds sterling. Examples include 401(k) and IRA plans in the USA. It might then be reasonable to treat the sterling-equivalent amount as additional UK defined contribution monies, and thereby ascribe to such funds the characteristics of a UK-based plan, i.e. accessible from age 55 onwards, subject to income tax in payment but for a tax-free cash lump sum etc. The extent to which such a broad-brush approach may be deemed applicable is likely to depend on the relative magnitude of the overseas rights to the others in the case: an overseas fund equivalent to £50,000 is more easily glossed over where total pension rights exceed £500,000 than a case in which these instead comprise the majority of the pension assets.

Overseas defined benefit pensions are in general much harder to deal with, in keeping with the fact that the treatment of such UK-based arrangements is more complex than dealing solely in defined contribution funds. The existence of an explicit per annum pension promise at retirement whose value is not necessarily congruent with that of the disclosed cash equivalent means that detailed analysis is typically required, which is by definition much harder to perform in respect of overseas rights.

In particular, it is noted that while inflation-proofing of pension incomes is somewhat standard when it comes to defined benefit UK rights, this does not necessarily extend to all overseas arrangements. Likewise, UK pensions law requires that pensions ‘vest’ after no more than 2 years (the vesting period the minimum level of scheme service before a member is entitled to scheme benefits, rather than a mere refund or transfer of contributions on leaving service), but this again may well not apply to schemes in other jurisdictions. The authors are also aware of misleading statements being provided by such schemes, where what is described as the ‘accrued pension’ is, in fact, the projected figure that relies upon future service to retirement age: a quite different amount for an individual who might have a further 20 years of employment before retirement.

Overseas state pension arrangements are myriad in nature, with many features that may well differ from what exists in the United Kingdom, including the existence of variable pension ages with different levels of benefits then being available. The terms upon which citizens accrue such rights are likely to be highly varied, and again the practitioner is very much likely to be at the mercy of paperwork provided by the client and/or generic content found online. It is noted in passing that, despite the former Federal and Democratic Republics of Germany (being West and East, respectively) having been reunified as long ago as 1990, it was only in 2025 that state pensions for citizens of the former regimes were harmonised.

Other issues encountered in respect of state pensions payable overseas include the fact that in some countries – for example, the Netherlands – these may be subject to some form of formulaic or ‘automatic’ sharing on divorce, i.e. upon learning of the divorce, the state will then seek to deplete one party’s entitlement to provide something to the ex-spouse. Practitioners should seek to investigate this as it may affect the extent to which such overseas rights need otherwise be considered in the settlement. It is noted that such considerations may well only apply to pension rights accrued within the marriage, rather than the entirety thereof. In some jurisdictions, this mandatory sharing on a formulaic basis can only be departed from in exceptional circumstances.

It should be noted also that the overall framework in which pensions are accrued may differ by country, i.e. provision may go beyond the state vs occupational/personal split that exists in the United Kingdom. Indeed, some countries have funded industry-specific pension arrangements into which contributions are compulsory, in addition to explicit state provision and voluntary arrangements. For example, in France, Agirc-Arrco provides supplementary pension benefits to employees in agriculture, commerce, industry and services.

There also exist a number of ‘supranational’ pension arrangements for employees of international bodies, including the UN, NATO, the European Commission, IMF, etc. These often provide benefits that are denominated in US dollars (or euros) and the arrangements tend to lie beyond the jurisdiction of national courts such that orders cannot be imposed upon them. All such arrangements need be considered on a case-by-case basis.

Practical considerations

It follows that where pensions or other assets are denominated in another currency, an additional element of risk is introduced into a settlement that involves netting off differences in assets. This is because any such calculations will be a function of the then prevailing exchange rate, and it follows then that any movement in the other currency against sterling will have the effect of changing the value of each party’s settlement assets. This is especially true where the parties are ‘young’, with the settlement relying upon the offsetting with assets today of pension rights payable many years hence. It is noted that in the last 20 years, £1 has been able to secure as much as US$2.09 (in November 2007) to something slightly north of parity (US$1.08 in September 2022). Thus any settlement that was deemed ‘fair’ at the earlier date may not be deemed to hold some 15 years hence. This risk might be mitigated by the provision of offsetting monies in the currency in which the actual rights are held, but this may well be undesirable to an ex-spouse who intends to live only in the UK hereafter.

One further blocker that exists might be a practical one, being the provision of pensions documentation in languages other than English. Google Translate and similar may well assist for rudimentary attempts at the interpretation of statements with few words on them, but longer and more complex documents are likely to require the provision of a professional translation, which may in turn give rise to further costs for the parties. It stands to reason that one party to a divorce who is ‘monoglot British’ is unlikely to accept the other party’s own translation of documents from his/her native language to English.

The analysis of complex pension provision almost always calls for the services of a pensions on divorce expert (PODE), but this may be harder to come by where overseas pensions rights exist. Most UK-based PODEs will regard themselves as experts only in the pension arrangements that exist within this jurisdiction, and will most likely profess to a more limited understanding of what might apply abroad, not least on account of the myriad of such arrangements and the infrequency in which any particular arrangement may arise.

It follows then that it may be necessary to engage the services of overseas-based experts, especially where matters pertaining to the tax treatment of such benefits applies, and this is likely to be an expensive endeavour. A UK-based PODE is more likely to accept an instruction with overseas pensions where they are: (1) relatively modest compared to the UK rights; (2) entirety defined contribution in nature; and (3) readily understood based on the information available. Where these criteria are not fulfilled, it may well be the case that the instruction will be declined or at least restricted solely to the UK pension provision.

Tips for consideration

Don’t make assumptions as to what might otherwise happen to the overseas pension rights. Instead, use an expert in the jurisdiction in which the pension is held. Mrs X and Mr Y divorced and entered into a consent order in which X received a PSO over 65% of Y’s English occupational pension on the understanding Y would retain his Swiss pensions, i.e. all 1st, 2nd and 3rd Pillar entitlements. Unbeknown to Y, after the conclusion of the English proceedings, X instigated proceedings in Switzerland to secure her mandatory entitlement to share in Y’s Pillar entitlements accrued during the marriage to the point of divorce.

Don’t determine the distribution of the assets until all expert evidence is obtained and understood. A piecemeal approach can lead to the difficulties encountered by Mr Y in the example above. He had to apply to set aside the order which proved difficult given, with sufficient investigation, it could have been foreseen that the Swiss court would share the accrued Pillar entitlements.

Don’t assume the assets will remain in situ while a negotiated settlement (or court imposed one) is conducted. In some countries (e.g. the USA) pensions can be surrendered for cash. Often there is a financial penalty for doing so but if a party is set about the dissipation of wealth during the course of the proceedings, think about preservation of wealth orders or undertakings.

Don’t assume other countries have ‘mean’ state pension provision. This can be a highly generous benefit: Austria, Spain, Switzerland and Germany all have high levels of state provision compared to what is offered in the United Kingdom. If you are looking to achieve equality of income in retirement, obtain the details.

Establish if you are dealing with a ROP (recognised overseas pension, pursuant to Finance Act 2004, s 150(8)) or a QNUP (qualifying non-UK pension scheme). Both are complicated but have some bearing on taxation considerations and reporting information. This can have a relevance in terms of seeking disclosure from a non-disclosing spouse. The ROP has a relevance in the potential for one to build up pension in the United Kingdom and retire abroad and take the pension asset with them. Specialist advice should definitely be sought.

Consider the instruction of an expert in the overseas territory alongside a UK-based expert. It may be that the English proceedings are conducted alongside supplemental proceedings in the jurisdiction in which the overseas pensions are held, with it being noted that this can be costly. Practitioners should obtain a report from an expert in the jurisdiction otherwise assumptions made in dividing assets in the English proceedings may prove to be erroneous. Between them, the two experts can consider the totality of the underlying benefits that might be lost or gained on divorce to achieve a fair outcome.

Offsetting is the most obvious solution but currency risk remains. The parties need to be comfortable with the assets that they hold post-divorce and accept that the relative values of these are subject to change where they are denominated in different currencies.

Unattractive as it often is and contrary to the court’s duty to consider the clean break, the option exists for parties to adjourn pension claims until approaching retirement. Usually though this simply means deferring the problem to another day!