BLOG: Love and money: Are DIY divorces a quick way to lose out?
With the introduction of online, no-fault divorces, it is now simpler than ever for couples to separate – often without the time and expense that comes with a lengthy court case. However, without professional guidance, many who opt for a ‘DIY’ divorce could find themselves navigating complex legal issues and ultimately losing out, particularly when it comes to finances.
Once a final order is granted, many assume that the divorce is complete. However, if the parties did not obtain a court order setting out their financial arrangements, financial claims can remain live for years after the parties have divorced – potentially leading to unwelcome surprises. So, what financial assets do divorcing spouses need to be aware of?
These can range from the obvious, such as the family home, business assets or second or rental properties to offshore accounts, trust assets, inheritance funds and even cryptocurrency, and it is recommended that all divorcing spouses seek professional advice to ensure that no stone is left unturned. However, one of the most valuable financial assets can be pensions.
The pension penalty
There has been a concerning rise in pension attachment or ‘earmarking’ orders, which allow the court to state that the pension provider should pay a proportion, or in some cases all, of one party’s pension to the other at the point of retirement, as a monthly income or a lump sum. These orders have many disadvantages, for example, if the pension member should die before retirement, the other party loses entitlement to any funds. Equally, the second party is only able to receive their share of the pension once it is drawn down by the first, meaning that divorcing spouses do not receive a clean break and remain tied together in financial matters potentially for years to come.
The preferred route would be to agree on a pension sharing order, where the funds are immediately divided between the parties at the point of divorce and can equalise income for the parties upon retirement. This mitigates the risk of remaining attached to a former partner post-divorce, however, there are other ways to protect key financial assets like pensions.
If one party is looking to protect their pension, they could offer their former spouse a larger share of another marital asset, such as the family home, to offset a claim against their pension. However, the best form of protection comes in the form of pre- and post-nuptial agreements. Without a nuptial agreement, the starting point in court is a 50:50 split of all matrimonial assets. If it is found that the pre- or post-nuptial agreement is fair and both parties entered it knowingly and with full understanding, there is a greater chance that it will be taken into consideration by the court and upheld.
Seeking specialist advice
DIY divorces sound simple, however, with both parties’ financial future at stake, it is vitally important to get things right. Much like a person would visit a doctor for advice on an injury, there is a need to seek specialist advice from a family lawyer to make sure that parties are fully informed when it comes to financial claims on divorce, so that they do not receive a nasty surprise in the future.
Whilst pensions may not be a realisable asset at the time of divorce, they will become fundamental to financial wellbeing in years to come and can often be one of the most valuable assets in a marriage. By not taking pensions into account from the beginning and seeking expert advice to ensure the right outcome, a divorcing couple could unknowingly be putting their financial future at risk.
Stephanie Kyriacou is associate and family law expert at Shakespeare Martineau.