No fault divorce is ‘turbo-charging hasty DIY splits’ that exclude pensions

Do-it-yourself divorces have skyrocketed and the number of pension split deals have plummeted in the wake of last year’s legal reforms, new figures show.

New no-fault divorce laws introduced last spring have made breaking up easier and faster, but critics say these trends could leave many ex-spouses worse off.

According to recent official data from law firm Nockolds, there were nearly 70,000 online DIY divorce filings in the first nine months of last year, compared to about 61,500 throughout 2021.

About 22 percent of divorce filings included a pension division order — the most common way to split pension pots — in the first nine months of last year.

That was the same as in the whole of 2021, although the percentage has fallen from 33 percent in 2017 – see the chart below for the longer-term trend.

And Nockolds says it’s likely that many couples divorcing themselves overlook pensions, possibly their greatest financial asset besides the family home.

Legal and financial experts warned ahead of the reforms that faster “no-fault” divorces could make it more difficult to distribute financial assets such as pensions fairly.

Couples can now divorce within six months of the initial application, even if one partner opposes it, and the process is largely online – including filing divorce papers by email.

Financial settlements are still handled in a separate and parallel process that can continue after the divorce is final.

But a report by Pensions Secretary Steve Webb and family law attorney Rhys Taylor predicted that the new emphasis on haste could lead divorcing spouses to underestimate the value of pensions, or prioritize things like childcare, property and more immediate financial security.

Divorced couples who don’t have a financial settlement can still go back later to negotiate one, but once it’s in place, it’s almost always final unless there are exceptional circumstances.

It’s not yet clear how many do-it-yourself online divorces are done excluding a financial settlement — with or without a pension split — as those numbers won’t be released until the spring, Nockolds says.

Therefore, it’s possible that the increase in quick do-it-yourself divorces will eventually lead to more couples realizing too late that they still need to sort out their finances.

There are three main options when dealing with pensions in a divorce: they share on a clean break basis in a pension split arrangement; a partner reserves part of the income to pay to an ex-spouse after retirement; and offset their value against other assets.

Francesca Davey, chief associate of the family law team at Nockolds, says: ‘It’s easy to overlook financial solutions or seek legal remedies that are inappropriate when filing do-it-yourself divorce filings.

‘Because a pension is usually in the name of one of the spouses and is linked to their employment, it is often wrongly assumed that it is not divisible.

‘Ignoring pension assets can be financially disastrous for someone with little or no retirement provision. If a spouse has accrued even a modest final salary, it is likely to be worth significantly more than the average UK home.

“While most people have a good idea of ​​what their home is worth, far fewer people know what their spouses’ pensions are worth, what benefits are worth, or even how many pensions they have or who their fund is with, which leads to to skewed priorities in the distribution of marital property.’

Nockolds believes that for many couples a pension division order is the fairest way of dividing these assets, as they are split at the time of divorce and allow the receiving partner to put a lump sum into their own pot or make a new amount. to deposit. An.

However, it warns that many spouses entering a do-it-yourself divorce make the mistake of opting for the generally inferior “earmarking” option called a pension garnishment.

‘A pension garnishment is risky, unless the pension is already being withdrawn, and it is important to look at exactly what benefits the pension type offers to avoid making the wrong choice,’ says Davey.

She adds that with the introduction of no-fault divorces on April 6 last year, the trend of do-it-yourself divorces overlooking pension assets is already accelerating.

“We’re already seeing evidence that no-fault divorce is a hasty do-it-yourself divorce where the applicant doesn’t consider all available financial resources.”

Nockolds points out that the fall in claims for retirement sharing comes despite both the overall divorce rate and the median age of divorcees rising.

Steve Webb, former Minister of Pensions and now a partner at financial adviser LCP, says: “There was always a risk that a more streamlined divorce process would lead to a greater emphasis on a speedy resolution and less on more complex and difficult issues such as taking account. keep with pensions when reaching a divorce settlement. ‘

On the Justice Department data obtained by Nockolds, he adds: “These numbers suggest that those concerns were well founded.

‘There is a real risk that if people divorce without seeking legal or financial advice, they will neglect pensions altogether or fail to see the true value of the pension assets that both parties have built up.

“There is a danger that we will see rising pension poverty among divorced women if this problem is not addressed.”

A Justice Department spokesperson said: “Our changes to the divorce law have given couples more time to resolve their issues and a greater chance of doing so amicably.

“Our new online divorce system provides information on financial matters, including pensions, to support families through financial proceedings who are divorced.”

The government expected a temporary spike in divorce filings following the divorce reforms last April, as people will have waited to file under the new procedure. It expects the number to return to previous levels after an initial spike.

> Things to consider when getting divorced: Find a 5-point financial plan here