This paper was delivered by Fiona Thornton in February, 2002.

I have framed this talk in the knowledge that your clients are likely, or potentially to be, high net worth individuals who are entrepreneurial and in business either as a company director trading through his or her own company or unincorporated.

In family law cases clients are frequently upset and ill at ease. You may be consulted to assist in relation to how the client's financial affairs require to be disclosed prior to or as part of a separation arrangement, a judicial separation or divorce. It might help your understanding if you establish your client's circumstances, e.g. whether or not they have children and if so their ages and number, whether or not they have a dependant parent and a live-in partner and whether that person has children.

Your role is likely to be there to assist in relation to the provision of information to the client and most likely their spouse (where an exchange of information is required or has been agreed pursuant to separation arrangements or judicial proceedings); you may also be asked to give your client a steer as to how assets may be divided in those circumstances or maintenance provided. Obviously, in relation to the latter, you already know the limitations of what you are and are not permitted to do in the relation of the giving of investment advice.

I am now going to run through the implications on the different types of marital breakdown situations.

It is still possible to obtain a degree of nullity. This is a civil declaration granted by the Circuit Family Law Court on grounds of:

• Non-observance of formalities;
• Lack of capacity;
• Lack of consent.

Where a decree of nullity issues, the marriage is regarded as being of no legal effect and the person is entitled to remarry. The above grounds relate to circumstances where a marriage can be declared void.

Alternatively, it could be regarded as voidable, i.e. one that can be set aside by the parties to the marriage and this can only happen during the lifetime of both parties. These grounds are due to impotence or the inability to enter and sustain a normal marital relationship.

The onus of proof is always on the petitioner to establish the ground upon which the marriage can be annulled, as there is a presumption of validity towards marriage.

The consequence of a decree of nullity is that the couple is regarded as not being spouses from the inception of their marriage. They are not spouses under any of the Family Law statutes. No maintenance is payable and there is no provision for divorce. No Succession Act rights arise. The individuals are treated as if they were never married.

As between children and parents, the position is different. Fathers of children of annulled marriages remain their guardians under Section 2 of the Guardianship of Infants Act, 1964 as amended by the Children Act, 1997. The relationship between the parents and children can be regulated by orders under the Guardianship of Infants Act, 1964 in the case of a dispute, e.g. over custody and access or maintenance payable in respect of the children. Where a decree is made, the Court may declare one parent unfit to have custody of the child on the death of the other parent.

This is a document drawn up and signed by the parties to a marriage explaining that the marriage has broken down and that the parties do not want to go to Court for the purpose of agreeing the breakdown terms. Usually the document will contain a clause agreeing to live apart, will make provision for custody, access to children, maintenance, and division of matrimonial property, reference to Succession Act rights and may contain a non-molestation clause. Both parties will sign it. Under these arrangements Court approval is not obtained but it is possible to have an executed separation agreement made a rule of court either in a Circuit or High Court if the agreement relates to the payment of maintenance either for the spouse or dependent family members.

If a maintenance agreement is comprised in a separation agreement, which is then made a rule of court, it is not possible to go to court for the purpose of varying the maintenance terms but only to ensure enforcement of them. It is really important to note that if there is a separation agreement, it is regarded as a bar to subsequent proceedings for judicial separation under the Judicial Separation and Family Law Reform Act, 1989. In the context of pensions, this is extremely important because pension rights may only be varied in a way, which overrides the pension scheme documentation (i.e. the trust deed and rules governing the pension scheme) if this is in a situation involving judicial separation or divorce. The reason for this bar is a result of cases that were brought in 1995 and 1998. The latter decision was one of the Supreme Court (P.O'D v A.O'D [1998] 1 ILRM 543).

Note that a separation agreement doesn't act as a bar to divorce proceedings, even though it acts as a bar to judicial separation. Neither does the agreement prevent a spouse instituting maintenance proceedings or bringing proceedings to vary guardianship, custody or access arrangements previously agreed.

The Judicial Separation and Family Law Reform Act, 1989 and the Family Law Act, 1995 govern the law in relation to judicial separation. Where a decree is granted the Court is given wide powers in relation to exclusion orders, property adjustment orders, lump sum orders, financial compensation orders and pension adjustment orders. There are six grounds upon which the Court can grant a decree of judicial separation. The grounds must be proved on the balance of probability. Unless the decree is granted, the ancillary relief orders may not issue.

The grounds are:

• Adultery of the respondent
• Respondent has behaved in such a way that the applicant cannot reasonably be expected to live with the respondent
• Desertion by the respondent for at least one continuous year before the application
• Spouses have lived apart for at least one year continuously before the application and the respondent consents
• Spouses have lived apart from each other for at least one continuous period of three years
• The marriage has broken down to the extent the Court is satisfied in all circumstances that a normal marital relationship has not existed between the spouses for a period of at least one year before the application.

The grant is dependent upon the Court being satisfied that the welfare of any dependent children of the marriage is properly catered for and the parties' respective solicitors have complied with certain obligations. These are to discuss reconciliation, to discuss and advise on mediation and to discuss the possible negotiation and conclusion of a separation deed or agreement. Where a judicial separation is being applied for the Court must give consideration as to the possibility of reconciliation and can advise the spouses to seek third party assistance.

Effect of Decree: The parties no longer need to live together; ancillary relief orders may be made by the Court (see below). The Court may declare either spouse to be unfit to have custody of any dependent child of the family.

Following the Referendum on 24th November 1995, the Constitution was amended and the Family Law (Divorce) Act, 1996 enacted. The Circuit Court and the High Court have jurisdiction to hear divorce applications.

Either of the spouses must be domiciled on the date the proceedings were issued or either must be ordinarily resident for at least one year ending on that date.

The following are the grounds for divorce:

• At the date of issuing of the proceedings, the spouses have lived apart for a period or periods amounting to at least four years during the previous five years; and
• There is no reasonable prospect of reconciliation between the spouses; and
• Such provision, as the Court considers proper having regard to the circumstances exist or will be made for the spouses and any dependent members of the family.

All of the grounds must be satisfied before a decree can be granted.

Dependent member of the family, in relation to a spouse or the spouses concerned, is regarded as being any child of:

• both spouses; or
• adopted by both spouses under the Adoption Acts, 1952-1991; or
• in relation to where both spouses are in loco parentis; or
• of either spouse or adopted by either spouse under those Acts or in relation to where either spouse is in loco parentis where the other spouse, being aware that he or she is not the parent of the child, has treated the child as a member of the family who is under 18 years, or if the child has attained that age is in full time education and under 23, or has a mental or physical disability to such extent that it is not reasonably possible for the child to maintain himself or herself fully.

The parties may remarry.

It does not affect the right of the father and mother of an infant continue to be joint guardians. The Court may declare either of the parties unfit to have custody of any minor child. If so, that party is not entitled to have custody of that minor on the death of the other party.

The divorced persons cease to be spouses for the purpose of succession rights and the Family Home Protection Act. They do have rights to bring proceedings under the Domestic Violence Act, 1996 against a former spouse.

There are tax implications.

They are no longer spouses for tax purposes, i.e. income tax, capital gains tax, capital acquisition tax, stamp duty, probate tax. Generally (but you would need to get specific advice in relation to tax issues) where assets are transferred pursuant to judicial separation decree or divorce decree, this is tax neutral.

Divorce decrees do not deprive a spouse of their right to claim statutory benefits such as widow's pensions, one parent family payment or to be entitled to a deserted wife's allowance.

As in judicial separation, solicitors acting need to have discussed issues of reconciliation and mediation and organising things outside the court process as an alternative to a court application prior to the issuance of proceedings.

This process is very important in both Circuit Court and High Court Family Law proceedings. It is a pre-hearing procedure intended to make available to both applicant and respondent all documents which exist (largely of a financial nature) and which may be relevant to a particular case or to the particular reliefs being sought.

In practice, both parties swear an affidavit of discovery and the affidavit lists all documents that are in the possession of the person making the affidavit or within his/her power of procurement.

The documents include copy bank statements, insurance policies, building society account books, credit union books, accounts of a business, etc. Videos, computer discs and tapes may come within the terms of an order for discovery. In most cases documents date from about three years before the issue of proceedings.

The purpose of discovery is to ensure that all relevant information and documents whether beneficial or detrimental to the parties case are produced in advance of the hearing.

It is most likely that in your client's case, the process of discovery is essential in ensuring that the Court is made fully aware of all the assets, incomes, valuations and other financial matters of the parties before reaching a conclusion in relation to ancillary reliefs.

The rules setting out the discovery process are contained in the Rules of the Superior Courts (No. 2) Discovery 1999, Statutory Instrument 233/1999. Their aim is to reduce the amount of unnecessary discovery applications in the High Court.

The process assumes that either party to the proceedings will request the Court to make an order ordering the other party to provide the relevant information. In order to apply for this sort of order, the applicant must explain why the order is required. He/she must verify that the discovery of the documents sought is necessary for disposing fairly of the matter or for saving costs. For example, it might be that the respondent spouse clearly has disclosed inadequate information and therefore full particulars are required. Also, the applicant must explain why each category of document is required to be discovered.

The order will not be made unless the applicant for discovery has previously applied by written letter seeking voluntary discovery and specifying the exact category of documents in respect of which discovery is sought and furnishing the reasons why each category of documents is required to be discovered.

Also, a reasonable time for such voluntary discovery request must be allowed and the Court must also be satisfied that the person who has been requested to provide the relevant information has failed, refused or neglected to make such discovery or has ignored such requests.

The Court has special jurisdiction to make an order without the requirement for a previous written application to be written to the other side.

If the judicial separation proceedings or divorce proceedings will involve a claim for financial relief, an affidavit of means must be produced. Sometimes this will be adequate to properly run a case and there will be no need to pursue discovery. However, if it looks as if the affidavit of means has not been properly drawn up or it is likely that it is incomplete, then the other side is likely to pursue the issue of discovery.

If full and proper discovery has been made it will lead to a speedier settlement of all issues in a case and a substantial reduction in legal costs. In your role as advisor to someone with assets and who is self employed or runs a private business, it is likely that their spouse would pursue the issue of discovery unless the voluntary disclosure clearly demonstrates that it is complete.

It is advisable for you to point out that a complete voluntary disclosure that is accurate and extensive will reduce the legal costs in the discovery process In 1999 in the case of M.W. v D.W. the Supreme Court made some useful comments on the issue of discovery and stated that -" in general where the issues are financial, there are two basic questions:

1. What assets do the parties own?
2. What provisions should be made for the parties and their children (if any)? Discovery of documents is not the most efficient of dealing with the first issue, whilst the second issue cannot be resolved until the Court is satisfied that all relevant financial details have been disclosed…."

The Court will not be keen on facilitating a fishing exercise and enabling countless discovery orders to be issued. There have been a number of cases in relation to the discovery process and doubtlessly your clients will be taking detail legal advice on what is appropriate in their circumstances. For your part, you need to make sure that you have clear records (I'm sure your do) that you can speedily put at the client's disposal.

Where the client has substantial assets, it may be possible to plead "the millionaire's defence", which is to minimise the large amount of paperwork involved in a matrimonial case where the assets are extremely large. The assets must be extremely valuable. It is thought that the assets must exceed e18.75million. It is said that the use of this defence in Irish Courts has been extremely rare to date but it is likely to rise in the future. The defence is that because of the financial affairs of the defendant being so extremely complicated, the Court would accept a summary of assets, together with their values, without the necessity for producing supporting documentation. The Court requested an estimate of the income of the husband prepared by his accountants and proceeded to deal with the case on that basis.

The discovery process is an extremely important part of obtaining information upon which the Court is able to make an evaluation as to the party's financial position and therefore make the appropriate ancillary orders. Consequently, practioners need to make necessary enquiries into the other spouse's assets and income before attempting to finalise a matrimonial case, either by way of settlement or Court hearing. A balance needs to be maintained between the need for full disclosure and the unnecessary pursuit of a large number of irrelevant documents that disclose very little.

Both the Family Law Act, 1995 ("the 1995 Act") that governs judicial separation and the Family Law (Divorce) Act, 1996 ("the 1996 Act") governing divorce, governs the power of the Court to make ancillary orders.

In the first place, preliminary orders before the actual hearing for the relevant decree may be made on an interim basis. These cease once the application for separation or divorce has been terminated. They can govern maintenance, custody, access and domestic violence and relate to protecting the family home and contents. Equally, when the decree is made similar orders will apply. These will cover maintenance, incorporating financial compensation orders, pension adjustment orders, property and succession rights. Different types of maintenance orders arise. Lump sum orders may be made. Orders may be varied if the circumstance of either spouse subsequently changes. Financial compensation orders enable the Court to make orders in respect of life assurance for a dependant spouse and children. In the case of judicial separation, the Court may make such an order requiring either or both spouses to:

• Take out an insurance policy for the benefit of the applicant or any other dependant family member specified in the order;
• Assign the life policy in whole or in part to the other spouse or dependant family member;
• Continue to discharge the premiums due on a particular policy.

Section 11 of the 1995 Act gives the Court this jurisdiction. In granting such orders the Court must consider whether the financial security of either of the spouses or any dependent family member requires the making of such an order or whether they can be compensated by such an order for the loss of a benefit because of the judicial separation. The Court needs to consider whether adequate and reasonable provision can be made for the other spouse or dependent family member by a maintenance order, property adjustment order, etc.

Financial compensation orders cease to have effect on the remarriage of the applicant.

Before the 1995 Act came in, pensions as a family asset could not be interfered with under judicial separation. There is now a legislative framework that enables the distribution of pension benefits. It is complex. Without the judicial framework it is impossible generally to adjust what is essentially a private contract between the trustees of the pension fund, the sponsoring employer and the member. Now, however, the judge can order the trustees to disregard the rules and instead pay the member spouse's pension benefits in accordance with the order.

Pension adjustment orders can only arise pursuant to a judicial separation or divorce.

They relate to the member spouse's benefits, i.e. it is the pension belonging to the employee who is a member of the employer's pension scheme that is capable of being "carved up" under the POA. It may well be the case that both spouses are members of separate schemes, in which case mutual orders may be made. Also, several orders may arise if the spouses are members of several pension schemes i.e. they may be deferred members and or have concurrent membership of more than one scheme.

"Pension scheme" is widely defined and covers:

• An occupational pension scheme as defined by the Pensions Act, 1990 (Section 2);
• Retirement annuity contracts;
• Other products, such as buy out bonds, annuity contracts, and similar arrangements like those arrangements operated by the Law Society or by the Bar Council for their members and public sector pension arrangements.

If you are being asked to consider whether a client's pension arrangements would become within the ambit of POA's, you need to check out the legal basis upon which the arrangement has been set up to ensure that it is covered. It is likely that it would be, but in all cases, check it out.

A POA may be made in relation to:

• a retirement benefit; and/or
• a contingent benefit of the member spouse.

Retirement Benefit:

A retirement benefit is the pension income payable at retirement to the member and, on death in retirement, to the member's spouse/dependants. It may derive under a defined contribution scheme or defined benefits scheme.

Contingent Benefit:

A contingent benefit is the death-in-service lump sum benefit and also the death-in-service widows pension.

It is important to note that the Court, in deciding whether or not be make a pension adjustment order, must have regard to the question whether proper provision, having regard to the circumstances, exists or can be made for the spouse concerned or the dependant member of the family concerned by any of the other ancillary orders. Consequently, the pension scheme should, in the scheme of things, be the last port of call. However, if the value of the pension scheme is substantial then it may be an early port of call.

"Earmarking" and "Pension Splitting"

There are two basic concepts that are essential to the operation of the POAs: earmarking and pension splitting.

Earmarking means that a percentage of the whole or the part of the benefit should be paid directly to the other spouse or to another person for the benefit of the dependent member of the family. It can apply to the retirement benefit or the contingent benefit. Earmarking orders are really pension adjustment orders.

Pension splitting is a means whereby effect can be given to a pension adjustment order in respect of a retirement benefit only. It means that a percentage of a retirement benefit that has been earmarked for the other spouse is valued and is used to provide a separate pension for the other spouse, either within the same pension scheme or in another pension scheme or by way of a bond. Pension splitting can come about in a number of ways, one of which is on foot of an application by a spouse in respect of a pension adjustment order that has already been made.

The legislation sets out in detail how the pension may be adjusted.

POAs: Contingent Benefit

The contingent benefit may be directed to be paid to the non-member spouse and such specified person for the benefit of a dependent member (i.e. to a responsible adult on behalf of a minor child). In this way, the trustees may be ordered to transfer the entire of the contingent benefit to the person specified in the order or part of it. If the order is not for the full amount, the balance then becomes payable in accordance with the scheme's rules. Contingent benefit orders cease on the death or remarriage of the non-member spouse in so far as it relates to that person. Orders made for a dependent family member cease to be of effect when the dependency ceases. A POA relating to contingent benefit cannot be made in favour of a spouse that has remarried. The application for a pension adjustment order in respect of the contingent benefit may not be made after one year after the making of a decree. Under the judicial separation legislation, it cannot be varied but the divorce legislation is silent on this point.

Contingent benefit orders provide for a percentage of the benefit to be paid either to the other spouse or to another person for the benefit of the dependent member of the family or to both of them. If the payment is to be both, then the Court must specify the proportion that is to be paid to each.

If a decree of judicial separation or divorce has been granted, a pension adjustment order may be made on application to the Court. The Court may order the payment to be made either to the other spouse or a personal representative or to a person for a dependent member of the family, but not to both.

The application may be made by either of the spouses (including the member) or by a person on behalf of a dependent member of the family.

The order may apply to the whole, or a part, of the retirement benefit. No order can be made if the applicant spouse has remarried.

POAs: Retirement Benefits

The POA can only be made in respect of an amount of the retirement benefit that has accrued up to the date of the decree of the judicial separation or divorce. The order must specify two things: a period and a percentage.

The period will be a period of reckonable service of the member prior to the granting of a decree of judicial separation or divorce.

The percentage will be a percentage of the amount of benefit accrued during the specified period of reckonable service, which should be paid on foot of the order.

Reckonable service means service in relevant employment during membership of any scheme.

Example

If a member has been in a pension scheme for 11 years at the time of the grant of a decree, the Court could specify any time up to 11 years and take any percentage of the retirement benefit accrued during that period. Assume that the parties have been living apart for 6 years prior to the decree. If, on this example, the Court specified 5 years and 50%, then the person in whose favour the order is made would be entitled to receive 50% of the retirement benefit which had accrued during the 5 year period, which in a defined benefit scheme, would probably be 2˝/60ths(where the pensions promise is 40./60ths) The entitlement under the order would therefore be 2˝ /60th of the retirement benefit (i.e. pension at normal retirement date) payable to the member. The part of the retirement benefit which is ear-marked for payment is called the "Designated Benefit".

Nominal Pension Adjustment Orders

These sometimes arise to ensure that neither spouse has any interest in the pension scheme of the other. This cannot be achieved by a waiver or disclaimer, but only by a formal pension adjustment order. For example, if the wife wants the husband to have no interest in her pension scheme, then they can agree to a nominal pension adjustment order being made. It appears that it is not possible to make a nil pension adjustment order. A nominal pension adjustment order would specify that for a period of one day, being the reckonable service period, and that the percentage would be 0.0001%.

Variation of POAs

Under the 1995 Act, the Court may vary a POA in relation to a retirement benefit but not contingent benefit.

Pension Splitting

If the retirement benefit has not yet come into payment and a pension adjustment order in respect of it has been made, the applicant spouse has two options. They may leave the designated amount within the scheme or they may apply to have this cashed out and transferred to an approved vehicle. The transfer amount is calculated under guidance notes issued by The Pensions Board. It can be dealt with under the member spouse's scheme if the trustees and the non-member spouse agree, or transferred to an approved vehicle, i.e. the dependent spouse's own pension arrangement or a buy out bond. Only a spouse can apply for pension splitting.

This can happen at any time until the benefit becomes into payment.

Once the Order issues it must be served on the trustees of the scheme who retain it and pay on foot of them when the member spouse dies, in the case of a contingent benefit, or retires in relation to a retirement benefit provided the non-member spouse has not already applied for a transfer payment. To date POAs have, in the main, been poorly drafted and I have seen several which are unclear in their meaning. Because trustees do not have to immediately act on them the difficulties such orders present have not yet surfaced. And it may be that the parties will need to revert to court to obtain a revised order that is effective for the trustees to follow and understand. So it is really important that the client ensures advice is taken to ensure the order is properly drafted for the court. The scope of the legislation is geared towards DB arrangements and does not interact easily with DC plans. For example, it is hardly relevant to a DC plan to allocate part of this to the non member spouse on a service basis when the fund is capable of being given a market value as at a time shortly before the order is made. There are also ARF/AMRF difficulties mentioned below.

Note that the pension scheme trustees must be notified prior to an application for a pension adjustment order being made and they have a right to make representation to the court in respect of same and for such costs to be borne out of the member's interest in the fund.

I am not going to deal with the consequences of the death of a member spouse before the ear-marked benefit begins to be paid, or his/her cessation of membership of the scheme otherwise than on death, or the death of the non-member spouse. The choices DC trustees have in relation to POAs affecting their scheme. These events (and more) are comprehensively dealt with under the legislation.

I am going to deal with the interaction of the ARF/AMRF tax options. You may recollect that these are available to those who retire where they own 5% of a company that operates pension scheme for their benefit or where they are self-employed. In either case, the proceeds of the pension scheme attributable to the member or to the RAC arrangements are transferable to the ARF and the AMRF.

What happens if the member then is party to judicial separation or divorce proceedings?

The existing framework does not sit easily with the ARF/AMRF structure. Bear in mind that the latter means effectively that the pension has already come into payment.

The legislation provides that where the Court is making an order in relation to retirement benefit, it must specify the period of reckonable service of the member spouse prior to the granting of the decree to be taken into account and the percentage of the retirement benefit accrued during that period to be paid to the member's spouse or guardian of the dependent member of the family.

It may be a little tricky to arrange this as the history of the relevant service period may not be accessible to the persons administering the ARF/AMRF product. In this connection note that the legislation indicates that such persons would be regarded as trustees for the purposes of POAs. Consequently, they will require to be notified (and in practice it should be prior consultation) of the member spouse's intention to seek the order. Also, note that, in my view, the pension scheme constitutes the ARF and the AMRF together but it would be appropriate to arrange that the order relate to the ARF only. Where the parties wish to split the ARF it is likely that they will agree that € xxx should be specified in the order as the amount to be held for the benefit of the non-member spouse. The legislation does not specifically require/permit an amount to be specified and its unclear if an order specifying an amount will be valid. However, the court has wide jurisdiction to direct the trustees of the scheme to take action not otherwise permitted under the rules of the scheme so possibly this power enables an amount to be specified.

I understand that there are pipeline changes proposed as to how the pension adjustment orders are to be arranged going forward and possibly these changes we will see, in due course, legislation being introduced which will cover the difficulties with ARFs/AMRFs. A further difficulty is that because the product means that the pension has already come into payment, it seems that the member spouse has no right to a transfer amount. Effectively this may mean that the member spouse has no right to arrange that the portion of the ARF which the Court directs the product holder to hold for his/her behalf can be invested in another product with another product holder. However, this right may arise contractually or pursuant to tax rules governing these products.

In conclusion, the family law aspect of pensions is a minefield.

If you client is having difficulties in relation to the break-up of a relationship, it may be helpful to ascertain their circumstances as to whether or not they are seeking a separation agreement, judicial separation or divorce etc. Consider the disclosure process and affidavit of means required pursuant to the relevant legislation. Remember the pension assets are required to be the last port of call. If they are going to be relevant in any settlement proceedings, remember the trustees need to be notified upfront. Your client will be required to take detailed legal advice in relation to how the proceedings are organised. This is especially so in the context of pensions. Actuarial and legal input will be required.

For further information please contact Fiona Thornton.