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Divorce law shake-up could intensify pension gender gap

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07/03/2022
Couples will be able to secure a ‘no fault’ divorce next month, taking the process largely online. But the move could mean pension wealth disparity, with women hit hardest, experts warn.

The biggest shake-up in divorce law in half a century will take place next month, allowing couples to secure a ‘no fault’ divorce within six months.

But as the process will be essentially digitised, with divorce papers being sent via email, experts have warned this could “undermine the effective sharing of pension wealth at divorce”.

Further, divorced women “could be at high risk of retirement poverty”, according to the co-authors of a research paper looking at the potential impacts of the sharing of pensions under the new divorce system.

Currently, divorce is only granted on the basis of ‘irretrievable breakdown’ of a marriage. Separation of two years is considered sufficient evidence as long as both parties agree.

However, for a quicker divorce, one party is required to demonstrate ‘fault’ such as alleged adultery.

Turning to pension wealth, the report noted there are currently three main ways retirement savings can be taken into account as part of a financial settlement at divorce:

  • Pension sharing –  by formal court order where one spouse is awarded a share of the pension, ending up with a pension in their own right and in their own name;
  • Pension attachment – one spouse is ordered to receive a share of the pension of the other spouse when it comes into payment;
  • Pension offsetting – pension wealth taken into account during the settlement but where one spouse agrees to accept a greater share of non-pension assets (eg house) in return for foregoing a share of the pension.

However, only a third of divorces see a formal financial order, and many of these make no reference to pensions at all.

The remaining number (two-thirds) could be due to divorcing couples underestimating the potential value of pension wealth; pensions could be seen as too complex and technical, requiring specialist knowledge, and where children are involved, it may result in less focus on pensions.

“All of these are problems of the current system, and research indicates that divorced women often end up with very low levels of pension provision in retirement as a result. The new divorce process could make matters worse,” according to former pensions minister and LCP partner, Steve Webb, and Rhys Taylor, a family law barrister specialising in pensions on divorce at The 36 Group.

New divorce law

The 6 April 2022 changes do away with the ‘fault’ requirement, allowing one or both parties to file divorce papers online. Where one party files for divorce, they then have 28 days to notify the other person. This notification should be by email by default, although a printed confirmation of the sent email should also be posted.

Twenty weeks after first filing, an application can be made for a ‘conditional order’ for divorce (decree nisi) and after 26 weeks, an application can be made for a ‘final order’ for divorce (decree absolute).

As divorces will be granted on a ‘no fault’ basis, there’s not much the other person can do to stop the process if they don’t want to divorce, unless the proper procedure hasn’t been followed.

While the move to ‘no fault’ divorce has been welcomed and should streamline the process, concerns are mounting over what this means for pension wealth for divorcing couples in England and Wales.

As part of a new paper ‘You’ve got mail’ co-authors Webb and Taylor said the new system has emphasis on speed so there’s little time for real discussion or debate about pensions.

“The crucial area of pensions sharing on divorce could be even more neglected than it is at present”, they warned.

Webb and Taylor explained that in some cases, a spouse may receive notice that a divorce application has been made just a few months before the court is asked to grant the first divorce order.

They will have to deal with a range of practical issues including care of any children, impact on living arrangements and short-term financial support post-divorce.

“Against this backdrop, taking time to make sure pension rights are included in any settlement and properly valued may be a low priority. They may also be reluctant to raise pension issues for fear of being seen to be ‘obstructive’ or ‘difficult’, in a new system designed to reduce conflict and the need to prove fault.”

‘Little understanding on the value of pensions’

Webb said: “One group currently at high risk of retirement poverty is divorced women. In large part this is because relatively little attention is often given at the time of divorce to a financial settlement which gives proper weight to pension wealth. It is entirely understandable that divorcing couples focus on other matters, but the risk is that people simply do not understand the value of pensions. Whilst there is much to commend the new divorce law, it would be very unfortunate if a by-product was that even fewer divorces were accompanied by a fair sharing of the couple’s overall wealth, and in particular of pensions”.

Taylor added: “I very much welcome the new divorce law, but the family justice system needs to be astute to avoid the law of unintended consequences. So often pensions are the last thing anyone really wants to think about, especially on divorce. Care needs to be taken to ensure that the fair distribution of pension wealth on divorce is not overlooked in this brave new era.”

They are calling for more research and monitoring into what happens during the divorce process, with particular attention on pension wealth, and for close scrutiny by the Ministry of Justice into whether attitudes and outcomes on pensions change as a result of the new divorce process.

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