“While many will agree that the UK’s archaic divorce legislation in England and Wales 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.
“When couples divorce they have different options for how they divide pension assets between them, including:
- Offsetting, 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, where pension assets are divided at the time of divorce and there is a clean financial break.
- Pensions attachments orders, where the pension provider of one party pays an agreed amount direct to the former spouse when the pension rights come into payment. This does not represent a clean financial break between the couple and risks the loss of future income for the former spouse if the person with the pension rights dies before retiring or the former spouse remarries.
“Divorcees need to make sure they are receiving professional advice, both legal and financial, before, during and after any divorce case to ensure any settlement is fair for all parties involved. It should not be acceptable for pensions to be ignored, since they will have a major impact later in someone’s life.
“While pension sharing orders remain the preferred way of splitting these assets, statistics show pension attachment orders have risen in popularity at a greater rate over recent years. It isn’t entirely clear why this is the case as attachment orders have significant weakness compared to other options available to deal with pension assets. For example, the ex-spouse remarrying can result in the ex-spouse receiving nothing.
“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.”
*Understanding the gender pensions gap report by the Pension Policy Insititute (PPI). The PPI research has found that the median pension wealth of divorced men and women by retirement is £103,500 and £26,100 respectively.