Offsetting and Cash Equivalents (CE)
Posted March 30th, 2012
One of the key distinctions to understand is the difference between a cash equivalent (CE) and other realisable assets which can be turned into cash. For example; the matrimonial home. The difference here is that these assets are capable of being turned into cash, whereas a pension scheme usually cannot, and has to be treated as either a present or future income stream.
Case law deals with this and best practice is around disaggregation of the pension assets so that these can be apportioned via the means of a pension sharing order. In big money cases this is relatively straightforward when looking to create equality as there are surplus assets and enough money to go round.
So when dealing with the asset schedules, in my opinion, the pension sits within them, rather than representing income. In fact, many courts use this balance sheet approach.
However, where the major matrimonial assets are the house and the pension only, disaggregation can often provide an unsatisfactory answer. For example, sharing the pension and sharing the house equally may not provide the solution that either party wishes to achieve, for example, the wife may not wish to relinquish the whole of the matrimonial home a she wishes to retain it for her and her children.
Often in such cases a mesher order, whereby the husband would receive an interest in the former matrimonial home but deferred until a future date, for example until the children’s 18th birthday or the death of a former partner were used, but we see less and less of these over time.
This leads to the situation where offsetting of the pension assets occurs and there is no set formula of how to properly measure how to offset. On many occasions, the court will make an ad hoc assessment on what they believe is broadly fair.
So the lesson here is, that there is no agreed method of offsetting, in fact at a recent seminar I attended, the actuary confirmed that in the last year he had seen eight different methods used to calculate offsetting. I will look at these in a future blog, however, it goes to show how much care needs to be taken when looking at this matter and agreement on which basis the calculation should be done on.
If this is an issue that affects you please call in confidence on 0800 0921229 or email me at phil@thedivorceifa.co.uk
