Couples divorcing online warned not to ignore pension sharing
Data obtained by insurer Canada Life show 8,000 people filing for divorce online a month, up from a low of 2,000 a month in late 2018.
In April this year, the government changed the law and introduced ‘no-fault’ divorce, making the process much easier as separating couples no longer needed to apportion blame for the breakdown of their marriage.
Figures from the HM Courts & Tribunals service showed that around 3,000 applications for no fault divorce have been made since then, leading to a “continued rise of DIY divorces with little or no input from lawyers”, according to Shaun Robson, head of wealth planning at Killik & Co.
He said: “Divorce isn’t anything that anyone wants to go through, but of course it happens, and it can always be an opportunity to forge a new life once the dust has settled and emotions have subsided. The introduction of no-fault divorces will hopefully make the whole ordeal easier for many, but unfortunately, joint finances and assets can be a complicated matter that need untangling properly.”
While divorcing online might make the process of walking away from a partner less of a headache on the admin side of things, Canada Life warned it could leave one partner significantly worse off if they don’t get their fair share of the other’s pension entitlement.
“Pension sharing on divorce is a very complicated area of financial plans and can be neglected when couples are separating,” said Andrew Tully, technical director at Canada Life.
Separate data shows fewer than two out of every 10 divorces have pension sharing orders attached to them, which Tully said suggests pensions are often ignored in any legal separation.
He said: “If you are facing the end of your marriage or civil partnership it is important not to overlook pensions. Divorce is one of the most stressful and painful times people go through. Adding pensions into the mix can be daunting, but not dealing with pensions can be a huge mistake.”
According to Tully, people often avoid or overlook pensions because they can seem complicated. Where there is a solicitor involved, they should know to get the pension valued.
“But where there isn’t, many people, especially women, opt to try to keep the family home without understanding the real value of the share of the pension they have given up. Add in the fact pensions are difficult to value and difficult to divide and we have a complex situation,” said Tully.
Robson said that while divorcing couples may opt not to run up “chunky legal bills” when it comes to finances, decisions made in emotionally charged times can have consequences that last long after the final papers are signed.
Divorce and equity release
Data published earlier this month by Key Later Life Finances showed almost three times as many divorced women release equity from their home than divorced men, a figure that has gradually been ticking up in the past few years.
Last year 12% of people who released equity from their home were divorced, a one percentage point increase on 2020. Of the divorcees who took out equity release three out of four were women, and just one in four men.
Will Hale, chief executive at Key Later Life Finance, said: “Over the past few years, we have seen an increase in divorcees using equity release with more women than men choosing to access their housing equity. With the most recent official data highlighting that divorce amongst those aged over 65 has increased by 46% year-on-year and no-fault divorces now a reality, the number of divorcees who consider this option is only likely to increase.”
Echoing Tully’s observation that women are more likely to settle for the family home and ignore their pension entitlement, Hale added: “Women in particular appear to be keen to access their housing equity – potentially as they received the family home rather than pension assets and other savings or investments as part of a divorce settlement.”
Robson added: “Whether it is advising on pension sharing orders or cash-flow modelling to ensure that existing lifestyles can be maintained, using the services of a financial planner early on means that the settlement can be clearer and easier from the outset.”
Financial tips following divorce
Tully lists the following tips for those who may be thinking of, or going through, divorce:
Couples often write wills to help with division of assets, but when you get married any existing wills are invalidated. When you get divorced any existing wills are respected unless they are updated.
Pensions are a complicated area when looking at divorce and sharing orders, attachment orders or clean breaks are all available by way of sharing assets.
Pensions in payment using annuities – on divorce, unless the death benefits for annuities are updated with new spouse details, the original beneficiary will receive any annuity benefits from guarantees.
Control of assets on divorce – the use of trusts, including spousal bypass trusts, mean you can retain an element of control over assets.
Investment bonds can be assigned by court order to ensure there is no tax due when assets are transferred.