13 Jul 2022
Family & Matrimonial
These latest figures from the Ministry of Justice are worrying, as they suggest that thousands of divorcees could be sacrificing a stake in their ex-partner’s pension. This is particularly concerning when you consider that retirement pots are often worth nearly as much the family home or – if you divorce when you are older, which has become more common in recent years – they tend to be worth even more.
As the average age of people getting divorced rises, the value of their pension assets increases to the point where it can exceed that of the family home. In recent years, the average age of divorcees has increased to 46.4 years for men and 43.9 years for women, and data shows that the number of over-65s parting ways has also gone up.
These figures showing the drop in applications for pension sharing orders are even more surprising when you consider that the total number of divorces has increased – albeit slightly, by just 1.6% – between 2017 and 2020.
What is less surprising is that the drop has coincided with the introduction of DIY online divorces in 2018. It seems that pension assets are increasingly being overlooked as more couples have chosen to manage their divorces themselves online, without seeking professional legal advice.
In fact, pension sharing orders can split the pension pot straight away on a ‘clean break’ basis. There is no set share, as this depends on the divorcing couple’s circumstances, but the advantage of this type of order is that assets are divided at divorce, enabling the receiving partner to pay a lump sum into their own pension pot or start paying into a new scheme.
Some divorcing spouses (around 4,200 in 2019, the last Government-recorded data) still opt for old-style pension attachment orders, where one partner ‘earmarks’ some pension income to be paid to an ex-spouse after retirement. However, in many cases this is an inferior choice because it does not prevent the ex-spouse from transferring money out of their pension, nor does it oblige them to continue paying in. This means that, unless it is already in drawdown, it can be ineffective.
Why does the pension often get overlooked in divorces?
Older couples going through divorce often place undue emphasis on the house, the car and other savings while disregarding pensions. Because a pension is usually in one spouse’s name and is associated with their employment, there is often an incorrect assumption that it can’t be shared, but ignoring pension assets can be financially disastrous for someone with little or no retirement provision.
If a spouse has built up even a modest final salary pension, there is a good chance that it will be worth considerably more than the average UK house.
And yet, while most people will have a good idea what their house is worth, far fewer know what their spouse’s pension is worth, what its benefits are worth, or even how many pensions they have or who their fund is with. All of this can lead to a skew in priorities when dividing the matrimonial assets.
Under the new no-fault divorce rules introduced in April, couples can now get divorced within six months of first applying, even if one partner is opposed. Financial settlements are still dealt with in a separate and parallel process which can continue after the divorce is final.
At Harding Evans, we have welcomed the introduction of these new rules as they are sure to remove much of the acrimony and scope for conflict that was historically involved in the divorce process.
However, there are clearly some risks attached too, particularly if the couple attempts to manage the whole divorce process themselves without seeking professional legal advice. The online divorce portal does not provide guidance or make suggestions on what financial remedies are most appropriate in different circumstances so it could well mean that the more couples who reach an agreement without solicitor’s involvement, the more we will see large and important assets such as pensions being ignored.
I cannot overstate the importance of taking legal advice in respect of the financial arrangements during a divorce, to ensure all assets are considered and a fair agreement is reached for both parties now and into their retirements.
This decline in applications for pension-sharing orders since 2017 is enormously concerning, not least as pensions are often a person’s most valuable asset, providing essential security on retirement. The importance of considering pensions specifically cannot be underestimated. If a spouse decides to give up an entitlement to the other’s pension, it is crucial that they understand the value of what they are sacrificing and the possible pitfalls.
If you are considering divorce and don’t know where to start, our expert and friendly team at Harding Evans can advise you on all aspects of family law. For a confidential discussion about your situation, please contact the Family Law team on 01633 244233 or email firstname.lastname@example.org