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Lord Williams of Mostyn: Divorce is dismal. All divorce reflects human failures. The question therefore arises: what is to be done about the financial assets of the marriage. As the noble Lord, Lord Boyd-Carpenter, rightly said, the pension fund is either the greatest matrimonial asset or the second greatest. It is properly to be seen as a joint asset. It has been earned either directly or indirectly by both parties. The wife is fully entitled, I submit, in justice though not at present in law, unless and until this amendment takes effect, to her full part.
In the majority of cases--although not all, as the noble Baroness, Lady O'Cathain, said--at present the wife is left in a dependency which is indecent and unnecessary. I believe that there is no argument in principle against the thrust of the amendment and that any technicalities are not beyond the ingenuity of the human mind to resolve.
Lord Pearson of Rannoch: I too wish to support the amendments and to congratulate all Members of the Committee who have spoken so compellingly in favour of them. In lending my support I should declare a rather personal interest. Sadly, I am in the process of agreeing a financial settlement in divorce proceedings at the moment. A quite substantial part of my assets is represented by my personal pension fund. I believe that it is called a self-invested personal pension plan. It seems obviously fair, fair beyond peradventure, that my wife should in future be able to share in that fund and in the income arising therefrom. The amendments seem just as persuasive to me, even in cases where the pension is not the main asset.
Although it is not strictly the position in my own case, I wish to mention a situation which has perhaps not been fully exposed in the debate so far. It is that there must be many divorce settlements where the pension of one party represents such a substantial share of the joint wealth of both parties that, if it is not possible to split the fund and income, as proposed by the amendments, the family home may have to be sold, to the disturbance and therefore the detriment of the children who might otherwise continue to live where they have been brought up.
The amendments are not prescriptive. They would give the court the power to allocate this important asset either as agreed between the parties or as seems appropriate to the court. It appears to me that the case made by all other speakers is completely watertight, especially now that the dread hand of the Treasury has been so skilfully removed by the noble Baroness, Lady Hollis. I should be interested to hear anything that my noble and learned friend the Lord Chancellor can conceivably think of to say against the amendments--even acknowledging his considerable acumen. I very much hope that he will not employ his talents in that way.
The Lord Chancellor: That sounds slightly like a challenge and there is nothing that brings one forward quite like a challenge. I understand and fully sympathise with a great deal of what has been said about the amendments. I have sought to study the detail and have not found the amendments self-evident in their application, but I have no doubt that we can consider them later. They are quite complicated and I find it difficult to understand the main amendment and how it would work. If that is to be achieved, the Committee would need to decide matters of policy which go outside what is covered in the amendments.
The noble Lord, Lord Marsh, said that the pension is an asset just like other matrimonial assets. Of course, in a sense, that is true, but in another sense it is rather a special asset. The reason for that is that, generally speaking, the pension is not assignable. It is possible for a husband and wife between them so to arrange their property disposition from the point of view of tax as to minimise the tax burden on the couple. In the ordinary course most property assets are capable of being held jointly or in such proportion as the parties may decide.
However, that is not true of a pension. The pension is not assignable. That is the reason for the example given by the noble Lord, Lord Boardman, when the second wife--upright spirit that she must have been--generously wished to give the former wife a share of the fund which had been accumulated during the first marriage. However, although she was a beneficiary of that pension under the law, much as she would have liked to do so she could not assign it to anyone else. Therefore, the only way in which she could handle it was to give deeds of covenant out of the money that was payable to the former wife. Thus the pension is different in that respect, and it is quite an important respect.
Let us as take as an example a case where the husband is the earner and the wife has fully contributed to the family but has not earned a separate income. The only income coming into the home is the husband's salary during his working time, and then his pension when his working time is finished. There is no way in which the parties can divide that amount between them in such a way as to make any part of the husband's income the income of the wife for tax purposes. This is a fiscal point, but a very general one. It is part of the structure of our tax law as it is. The same is true of a pension, as my noble friend Lord Boyd-Carpenter, with his great experience of these matters, knows. The result is that the husband and wife between them, while they are married, can do nothing to reduce the total tax burden arising as a result of the payment of a salary during working time and the pension after retirement.
If a power of this kind is granted, on divorce that will alter the matter and give rise to two separate pensions, which will therefore be subject to tax separately thereafter. The total tax burden on the couple will therefore be reduced, which from their point of view is eminently a good thing. But there is no way in which they can reach that situation except through this kind of power. Thus, an incentive to divorce would, from that point of view, be created. That is certainly the case. If it is done simply in this way, it will have this effect--
Lord Marsh: I am most grateful to the noble and learned Lord for giving way. For very many years until relatively recently, when a wife's unearned income was taxed at the rate of her husband's earned income-- I speak from personal experience--getting married was an extremely expensive business. I managed to wipe out my wife's unearned income in the three minutes of the service in Marylebone Registry Office--which she did not appreciate! We still got married, and so do most people in those circumstances.
The Lord Chancellor: That is absolutely right in that case. All I point out, and wish the Committee to have full acquaintance with, is that divorcing, if this particular power is granted, will have exactly the same effect in reverse. It will enable the tax burden of the individuals in the circumstances I mentioned to be reduced.
Lord Pearson of Rannoch: Would my noble friend give way? Surely that is always the case. It is the same with all the other assets. Divorce can be very tax efficient. But surely my noble and learned friend is not suggesting that that is a reason for it.
The Lord Chancellor: That is not so true of other assets. If a couple want their income to be tax efficient, they have the possibility of so arranging the assets between them as to maximise the tax allowances. The reason why that is not possible for the pension is the non-assignability of the pension, just as the salary that one earns is non-assignable. Therefore, in respect of this kind of asset, it is not possible during marriage, by agreement, to arrange the situation in the way it would be possible to do by reference to divorce. All I want the Committee to understand is that, while this proposition is extremely attractive from the point of view of fairness, it has quite considerable consequences. In other words, it enables a couple, in respect of the division of property, to do something that they could not do with the fullest agreement assuming that they remain married.
Lord Shaughnessy: Can the noble and learned Lord help me in one respect? It seems that the Committee has a feeling that something should be done about the pension arrangement, and in all equity that seems quite appropriate. Is there no way that Parliament, in its sovereignty, can adjust the law to make provision for this, either in this Bill or in some other way?
The Lord Chancellor: Certainly, Parliament can in its sovereign way make arrangements, but they would be fairly far-reaching if they were to be fair to everyone. Basically one is removing the non-assignability of
Lord Stoddart of Swindon: This really is an extremely complicated matter. I am not well up in tax matters nor, I imagine, are a number of others in this Chamber. Is the noble and learned Lord saying that it would be tax efficient because there would be two tax allowances instead of one? But is it not the case at present that the state pension is assignable and a wife attaining the age of 60, if her pension is on her husband's contributions, is able to set her part of the pension against tax? Therefore there is assignability in the case of the state pension. Could the position not be overcome, and indeed would it not help marriage generally speaking, if the allowances were interchangeable? Would that not solve the problem?
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