When new “no blame” divorce laws came into effect in April 2022, divorce rates rose. The rise was attributed to couples waiting for the new laws to take advantage of the quicker online process and simplified rules.
So-called “DIY divorces” might be quicker but they also make it much easier for certain assets to be overlooked. PensionsAge confirms that 7 in 10 divorced Brits didn’t or won’t receive any of their partner’s pension.
And yet, according to the Office for National Statistics (ONS), private pension wealth is likely to make up the largest proportion of an individual’s wealth.
What’s more, as FTAdviser confirms in a recent survey, only 7% of divorcees said they would seek financial advice, despite 40% answering that the process was unfair.
The rise in DIY divorces – and failure to split pension wealth due to a lack of expert advice – is likely to particularly hit women, further widening the gender pension gap.
Keep reading for everything you need to know about no-blame divorces and how financial advice can help ensure you get what you are owed.
New divorce laws could be disproportionately affecting women
No-blame divorce laws in England have been in force for almost two years. Initially, they led to a rise in divorces.
FTAdviser reported that the second quarter of 2022 saw a 22% rise compared to the same period in 2021, while in Q3, applications rose by 8%.
As well as couples waiting for the laws to come into effect to seek a quicker DIY divorce, the strain of rising living costs was also suggested as a factor behind the increase.
In January 2024, though, the Guardian reported that the continued cost of living crisis could now be the reason for a drop in divorces. A study has found that 19% of those going through a divorce – amounting to around 270,000 couples – are delaying their separation as rising household costs bite.
The 2022 changes amounted to the biggest shakeup in divorce law for more than half a century. The changes removed the need to apportion blame or to have been separated for two years, and the application process moved online.
The gender pay gap, and the gender retirement gap, mean that women are already lagging behind their male counterparts in terms of pension provisions. And missing out on the pension proceeds of a divorce will only help to widen that gap.
Seeking advice early in the divorce process is key
Professional financial advice is crucial if you’re going through a divorce. It’s also vital you receive that advice as early as possible in the process.
It can help to ensure both parties understand the true value of the assets involved, and that every applicable asset is included in the calculations.
Sadly, as we have already seen, just 7% of 3,000 surveyed divorcees expected to seek financial advice. And the effects of this lack of advice are clear.
Just last year, PensionAge reported that only 1 in 8 divorces between January 2016 and August 2022 included a pension split.
The average median salary for a woman in the UK is £20,500. This is £10,900 less than for male workers. Women, meanwhile, make up the majority of part-time workers, who have an average salary of £7,000 (the salary required to be auto-enrolled is £10,000).
These factors make pension saving for women harder. A government report from June 2023 confirmed that the gender pension gap is 47% for those aged 45 to 49, while the pension gap begins to open between age 25 to 35, the age when women will typically look to start a family.
Royal London recently looked into another factor that affects pension contributions. Its report looked at the effect of menopause on retirement savings and found that 1 million women stop work altogether as a result of menopausal symptoms. This leaves those women, on average, £126,000 worse off.
Sharing a pension on divorce could be crucial for financial stability in later life
Factoring in pension assets is important for ensuring a divorce is fair and that both parties can live financially secure in later life. There are three main ways pensions can be shared.
1. Pension sharing
A Pension Sharing Order splits pension funds upon completion of divorce proceedings. Once a percentage split is agreed upon, that amount will be transferred to the benefiting partner.
This allows for a clean break as each partner will have a pension in their own name, which they fully control, containing their own fund amount.
2. Pension offsetting
Using pension offsetting, you and your partner retain the whole of your respective pension funds. But the value of each is offset against other assets.
A woman who lost income, and so pension contributions, while raising children, say, could see the lost pension amount offset by an increased share in jointly owned property.
3. Earmarking orders
A pension earmarking (or “pension attachment”) order entitles one partner to a portion of the other’s pension, but only once the policyholder begins to take benefits.
This leaves one partner beholden to the choices of the other, so doesn’t allow for a clean break. You might have to wait for your ex-partner to retire before you can retire, leaving you no option but to work for longer.
Get in touch
If you’re going through a divorce, seeking professional financial advice early is key to ensuring calculations include all applicable assets and that all pensions are included. HA&W can help you think about how a divorce might affect your long-term financial plans and ensure you don’t miss out on the valuable benefits you’re entitled to.
Contact us now to find out how our Chartered financial planners could help you.