Business Law: Nicola Furmston on pensions, property and divorce
- Credit: Archant
COMPANY directors often arrange to set up a SSAS (small self-administered scheme) to deal with their pension arrangements.
Directors commonly arrange to sell the freehold of the company premises to the pension scheme and the company then pays rent. The scheme may include other investments and will pay an annual pension to its retired members.
Spouses/civil partners are often members too. The directors and/or their spouses/civil partners become the scheme trustees and make investment decisions, subject to the guidance of the scheme’s administrators.
Naturally, there will be consternation amongst the scheme members and trustees if one or more members becomes embroiled in a divorce. The court can make a pension sharing order as part of the divorce, which hives off part of a member’s entitlement and gives it to the spouse/civil partner.
This might mean that the recipient becomes a member of the scheme, or enhances the existing value of their membership, but it may, alternatively, mean the scheme faces making a payment into an open market pension arrangement.
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Members of a SSAS may well be concerned about someone being part of a scheme who has had a dispute with another scheme member, so often it is useful to make arrangements for a departing spouse/civil partner to leave the scheme.
Making a payment out of a scheme means that the trustees must raise money to make the payment out, either by liquidating assets, using cash reserves or borrowing. If the main asset is the company premises, liquidation may not be desirable but the trustees can raise money by way of mortgage.
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One alternative to a SSAS is a SSIP. This is a small self-invested pension, which is on behalf of one director. The director’s fellow directors and spouses/civil partners may have his/her own SIPPS.
It is not uncommon in this situation for the company’s property to be held jointly by the SIPPs, which again raises problems when a sale of the property is demanded by reason of a pension sharing order.
A better way forward may be for the trustees of the SIPP under attack to put forward other investments for transfer to the spouse/civil partner’s new scheme, or cash, leaving the property in the hands of the member remaining within the company.
The operation of SSASs and SIPPs is a complex issue requiring specialist legal and financial advice. Decisions should not be made without full enquiry into the workings of the scheme, scrutiny of its assets and investment choices and an analysis of open market and other options.
: : Nicola Furmston is a family law specialist at Barker Gotelee Solicitors.