No-fault divorces: How do they work and how can couples best split their assets?

On the first work Monday of every New Year, divorce lawyers are inundated with questions from unhappily married couples.

But while new “no-fault” divorce laws introduced last spring have made breaking up easier and faster, the cost of living weighing on household finances may deter some couples from moving on into next week’s “Divorce Day.” .

While the number of divorce filings has skyrocketed since the pandemic, many people are deciding not to go through with it in the current climate, said Stowe Family Law partner Niamh McCarthy.

“Over the past few months, I’ve talked to a lot of people who asked about divorce but put it off because of financial concerns, especially because they can’t afford to live alone,” she says.

A recent survey by Stowe of 380 people ages 25-74 who are married, cohabiting or have a partner found that 30 percent are staying in their relationship because of concerns about the cost of living crisis.

But at the same time, almost 60 percent fear that the current financial pressure could lead to the breakdown of their relationship.

“With so many distressed couples who don’t feel financially free enough to get out of their relationship, we may not see much of a rise in divorce filings on and around this year’s Divorce Day,” says McCarthy.

The survey also found that 72 percent were unaware of new no-fault rules, which would allow couples to divorce within six months of the initial filing, even if one partner opposes it.

The process is largely online, including sending divorce papers by email. But financial settlements are still handled in a separate and parallel process that can continue after the divorce is final.

Below, we explain the new process and provide tips from money experts on how to divide your finances in a divorce.

How have divorces changed?

Under the old law, divorces were only pronounced if there was an ‘irreparable breakdown’ of a marriage.

Either one spouse had to claim “debt” from the other – such as adultery, unreasonable behavior or desertion – or if both parties agreed, the couple had to separate for at least two years to provide sufficient evidence that the split was serious. used to be.

A five-year separation was necessary to divorce without one partner’s consent.

Couples can now get a no-fault divorce within six months. Joint applications are allowed, or one spouse can apply and then have 28 days to notify their spouse, standard by email plus a printed confirmation of the email in the mail.

A conditional order of divorce, formerly the ‘decree nisi’, can be applied for up to 20 weeks after the initial filing and a final order, formerly the ‘decree absolute’, can be applied for after 26 weeks.

Divorces go ahead even if one of the partners is against it, provided proper procedures are followed.

Financial settlements will be dealt with separately and the government is still looking at ways to reform this aspect of divorce.

However, experts have warned that the emphasis on haste in no-fault divorces can make splitting financial assets like pensions quite challenging. Divorced women in particular often have a very low pension after retirement.

See the box below and scroll down to find out more about how pensions can be divided upon divorce.

What to watch out for when getting divorced

1. Work out your budget and future financial plan

It’s important to understand your day-to-day budget if you want to maintain a similar lifestyle post-settlement, says Emma Watson, head of financial planning for Rathbones Investment Management.

“Monitoring your day-to-day expenses, large bills, and any anticipated future expenses, such as private school fees, will give you a goal to aim for when negotiating the settlement.”

You should create a financial plan that fits your goals, and keep in mind that your financial settlement can be received as a lump sum or ongoing maintenance payments, she says.

2. Decide how you want to divide your pension

There are three main options when dealing with divorce pensions: sharing on a clean break basis, one partner setting aside a portion of the income to pay to an ex-spouse after retirement, and offsetting their value against other assets.

Here we look at the pros and cons of each option and give some more tips on what to do and how to avoid the worst pitfalls of pension sharing.

Kirsty Anderson, pensions expert at M&G Wealth, says no-fault divorces mean that marriages are dissolved in a less confrontational way and the focus shifts to practical decisions.

But she notes, “While this may allow more attention to be paid to asset splitting, retirement is still too often overlooked, despite being a valuable, even potentially the most valuable asset a couple has.

“And this can be an even bigger problem if the divorce happens later in life, when any deficiencies in long-term financial planning are harder to make up for.”

Ben Glassman, head of family and divorce at Evelyn Partners, warns couples separating not to ignore state pension.

‘Women in particular often have gaps in their careers, which can have consequences for their state pension entitlement.

‘It is important to get a projection, especially when one wants to equalize the pension rights of the two spouses.

“The value of a guaranteed and inflation-linked income of £10,000 from age 66 (currently) until death is not to be underestimated.”

3. Try to be clear about the parental home

“Real estate is usually the largest asset, and if one partner wants to stay in the family home, they will often have to part with most of the other assets, such as savings and pensions,” says Glassman.

‘One partner often wants to keep the parental home in a divorce, especially if children are involved. But keeping the house doesn’t always make financial sense when you look at it in conjunction with other existing assets.’

He points out that a property you live in does not generate income and cannot be sold in parts to meet expenses.

Also, mortgage rates are no longer extremely low and may no longer be affordable if one party needs to take out a new mortgage, Glassman adds.

“Think about the expenses as a whole and not just the duration of the marital home, and if the family home is paramount, consider the compromises that may result.”

4. Consider bringing in a financial planner early on

We’ve looked at why you may need both financial advice and a lawyer, even in an amicable divorce.

Ben Glassman of Evelyn Partners says: ‘Many lawyers report that divorce proceedings go smoothly until negotiations begin on the division of assets, after which tensions and misunderstandings begin to derail the process.

‘That is why it is important to seek financial advice at an early stage, especially when it comes to large or complex financial assets – such as pensions, investments or business assets.’

Emma Watson of Rathbones says a financial planner will cost you and your family’s future life and take into account variables you may not have considered.

“This will be the key to determining whether monthly maintenance is sufficient, both now and in the future.

‘A financial planner will also look at the possibility of a lump sum. Using a budget forecast, they project spending alongside future interest rates and inflation to calculate how much money will be needed in the long run.”

She points out that it is better to engage a financial planner early in the process, as the opportunity to tailor a divorce settlement to one’s future lifestyle may be missed if done after an initial financial settlement has been agreed.

5. Find out how you might be affected by capital gains tax

Divorces who are willing to delay the transfer of assets between them until next April can yield significant tax savings, a legal expert here explains.

For partners who no longer live together, the period for tax-free transfer of capital gains is extended, from the end of the tax year in which they separate, to three years.

And if they have a formal divorce agreement signed by a court, there’s no deadline, says Lisa Pepper, Osbornes Law’s family partner.

While this means some couples won’t get a CGT bill at all, this tax could come back into play later after the assets are divided, according to Chris Springett, Evelyn Partners’ tax partner.

CGT can still be levied if an asset received by one of the partners is subsequently sold — a transaction, as opposed to a transfer — unless they can benefit from surcharges or other exemptions, he says.