What happens to a QROPS pension on divorce?

QROPS investors often look at their offshore pensions as an effective way to manage tax and make more of their retirement savings, but the schemes have other advantages as well.

Divorce is one financial upset that a Qualifying Recognised Overseas Pension (QROPS) can guard against.

British divorce and pension laws are only recognised in the UK because they are rulings issued in courts that have no jurisdiction outside the UK.

That makes any order over a pension enforceable outside the UK, no matter how much a miffed ex-spouse huffs and puffs over the decision.

If the funds remained in the UK, a divorce judge can, and probably will, include them in a settlement either by setting off the value of the pension fund against other assets, like the matrimonial home; ordering a share of any payments to go to an ex-spouse; or splitting the fund to give each spouse a share.

Some QROPS contracts will have a clause leaving assignation of a member’s benefits to an ex-spouse, but they are most unlikely to act against the wishes of a member unless ordered to do so by a court in the same jurisdiction as the pension is based.

Before considering any demand from a former spouse, the fund trustees are likely to want to see evidence, like:

• Due diligence on the ex-spouse or civil partner
• A clearly understanding of why any funds or rights over the pension should be assigned
• Permission from the investor giving up rights under their QROPS

Switching a pension from the UK in to an offshore QROPS because of an impending divorce does not constitute the best financial planning for many.

Others may criticise the decision on moral and ethical grounds even though the law does not forbid the transfer.

Before rushing to transfer any UK pension rights in to a QROPS, consult a lawyer and tax expert who are well-versed in cross-border matrimonial law and tax.