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Quickie divorce pension split warning

Written by: Emma Lunn
Women could be left vulnerable in retirement if plans to speed up divorces go ahead.

Ministers are voting on “no fault” divorce reforms in the House of Commons today when the Divorce, Dissolution and Separation Bill is read for the second time.

The Government says the reforms would end the “blame game” between separating couples and reduce unnecessary conflict.

The reading comes at a time when living in lockdown is placing increased pressure on relationships. According to Co-op Legal Services, divorce enquiries have increased by more than two-fifths (42%) since lockdown measures were introduced on 23 March.

But pension experts have warned about the risks of mismanaging the split of pension assets if DIY divorces become the norm.

Jon Greer, head of retirement policy at Quilter, says: “While many will agree that the UK’s archaic divorce legislation is due an overhaul, the timing of the government’s plans to speed ahead with the introduction of ‘no fault’ divorce is questionable with many families under increased strain financially and emotionally.

“We know people dealing with the emotional stress of divorce fail to make important decisions about major financial assets, such as their pensions. The introduction of no-fault divorce laws during the current pandemic could exacerbate this, with a further increase in ‘DIY divorces’ where specialist advice is not easily accessed or sought.

“This could see many miss out on important pension benefits and is likely to have a far greater impact on women than men, given they often have a less sizable pension of their own, leaving them financially vulnerable in their later years.

“It’s fairly typical for people to put greater focus on splitting tangible assets, like the family home, with many under-estimating the impact of mismanaging the split of a pension in divorce.”

Research by the Pensions Policy Institute shows the average divorced woman has less than a third of the pension wealth of the average divorced man. And figures from the Family Law Courts show only 13% of 116,612 files for dissolution in 2019 contained some sort of pension settlement order, in part explaining the gender disparity in wealth.

At the moment, unless someone can prove there was adultery, unreasonable behaviour or desertion, the only way to obtain a divorce is to live apart for five years. This is the case even where couples make a mutual decision to separate.

But the new rules would allow divorcing spouses to simply make a statement that the marriage has broken down. Divorces could be finalised in less than six months, with a 20-week period between the initial petition stage and when the court grants the provisional decree of divorce (the “decree nisi”).

The reforms would also stop one partner contesting a divorce if the other wants one.

When couples divorce they have different options for how they divide pension assets between them. These include:

  • Offsetting. This is where the pension assets can be offset against other assets of the divorcing parties. For example, one party many wish to stay in the marital home in lieu of receiving part of their ex-spouse’s pension rights.
  • Pension sharing orders. This is when pension assets are divided at the time of divorce and there is a clean financial break.
  • Pensions attachments orders. This is where the pension provider of one party pays an agreed amount direct to the former spouse when the pension rights come into payment. There is a risk of loss of future income for the former spouse if the person with the pension rights dies before retiring or the former spouse remarries.

Greer says: “No matter how simple divorce seems, the separation of jointly owned assets can be complex with long-lasting financial implications. Seeking out a family lawyer, followed by a discussion with a financial adviser can help you feel more supported and ensure that the division of assets puts divorcees on a better financial footing for the future.”

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