The next splitting headache : YOUR MONEY

THE House of Lords pricked another annual blister last week by approving the formal inclusion of a partner's pension in future divorce settlements in England and Wales, as they already are in Scotland.

If the Government takes the vote on board (and it is hard to see how it could dodge the issue without the risk of alienating yet another great chunk of the electorate), it rights another wrong in the eyes of divorced women, and brings the ideal of equality of benefits a step nearer.

But it is not just male chauvinism that has kept the pension entitlement largely the preserve of the male partner. And it is wrong to assume that women have been automatically short-changed by the system in the past 10 years, although they almost certainly were before that.

Even in Scotland there is no legal way at present in which pensions can be assigned or split. If divorce settlements come to court, the court will get an actuarial valuation of the pension entitlements of the two parties from the time of marriage up to the point of divorce or separation, add the capitalised sums to the rest of the joint estate, and divide the two between the husband and wife.

If they have joint assets of £100,000 for example and the man's pension to date is valued at another £100,000, he simply gives her the house and keeps the pension, although things are rarely quite that clean cut.

Courts in England and Wales are increasingly working the same way, and it would be a very dozy divorce lawyer who failed to raise the issue in court, or a very biased judge who failed to take it into consideration in a contested case. There is more of a problem in an uncontested case, where a wife may accept a settlement without realising the value of the assets the husband expects to keep.

If the law is changed in England and Wales, the easy option is to proceed in the same way - calculate a capital value for the pension or pensions from the date of marriage to the date of divorce, and formalise the system. But it will not straighten out all the kinks, especially in cases where the value of the pension exceeds the value of all the other assets in the pool, and the man (or the woman if she has the better pension prospects) would have to find a cash sum to compensate the spouse. It is a problem that will arise more often than not where the divorcing couple live in rented accommodation or a property with negative or negligible equity.

There could be problems if the current capital value of a pension plan is relatively small, but the spouse with the pension is forced to liquidate the plan to generate the cash to pay off the partner. A judgement of Solomon might also be required if the spouse with the pension prospects ends up with the children and needs the family house. Should they be forced to move down-market to finance the pension settlement?

The Pensions Management Institute, which represents professional pensions experts, wants to go down a different route from the Scots. The PMI's working party report on pensions and divorce, published in May 1993, urged that pensions of the divorced be given a transfer value and then split, so that the man and woman each have a piece of the action to keep until they reach pensionable age, or transfer to their own existing or future individual pension plans.

That would avoid the problems of leaving one partner with a house and the other with a pension - although it would also make the forced sale of the matrimonial home more likely.

In addition, it would cause hassle for the pension trustees in creating and perhaps maintaining two titles to a pension instead of one if the spouse chooses to wait for a share of the eventual pension rather than a capital sum to take away. Divorced women might well get a smaller annuity than divorced men when they eventually retire.

There could also be problems where pensions from an unfunded pension scheme such as that enjoyed by civil servants are concerned. In such cases, trustees may be reluctant to provide a lump sum for the spouse to take away, leaving the division of the eventual pension when it falls due as the only option on offer.

Difficulties could arise forcommon-law spouses (whose rights are more fully recognised in Scotland), for example in establishing the length of the relationship to calculate the size of their entitlement. Some of the older occupational pension schemes are still reluctant to recognise the rights of anyone who is not actually an employee or conventional widow to pension entitlements. If the employee dies, live-in partners and even spouses more than 15 years younger than their partners are often denied rights to a widow's/widower's pension.

In practice, trustees can often be persuaded to do their duty in such cases and recognise the rights of dependents nominated by the employee. But they might be much more reluctant to do so if they are called upon to provide a transfer payment to meet the claims of common-law spouses whose relationships break up.

If the law is changed, all these issues should be addressed and not left to chance.