The number of couples sharing their pensions during a divorce falls by a third

Many divorcees could sacrifice a stake in an ex-partner’s pension, as claims to share this valuable asset have fallen by a third in recent years.

Retirement pots are often worth almost as much as the family home, or even more if you divorce when you’re older, which has become more common in recent years.

Falling applications for pension-splitting orders coincided with the introduction of DIY online divorces in 2018, and new no-fault divorces are also likely to encourage haste and mean pensions are ignored, according to lawyers.

Money splitters: The longer the couple divorces, the more likely retirement assets will approach or exceed the value of the family home.

Pension splitting orders can split a pot immediately on a ‘clean break’ basis – although there is no fixed split, as it depends on the divorcing couple’s circumstances – but they are often not included in the financial regulations.

There has been a 35% collapse in requests, from around 36,200 in 2017 to around 23,600 in 2021, according to Justice Department figures obtained through a freedom of information request. from law firm Nockolds, which This is Money can exclusively reveal.

“These numbers suggest that thousands of divorced people are losing their share of their ex-spouses’ retirement assets,” says Francesca Davey, senior partner on the firm’s family law team.

“For the growing number of divorcing older couples, private pensions are often the most important asset after the family home. With more and more couples undertaking DIY divorces, online retirement assets are increasingly being overlooked.

Nockolds says the fall comes despite a slight 1.6% increase in the total number of divorces between 2017 and 2020.

The average age of divorcees has also risen, to 46.4 for men and 43.9 for women, and official data shows that the number of people over 65 who separate has also risen, according to the company.

He notes that as the average age of people who divorce increases, the value of their retirement assets increases to the point of exceeding that of the family home.

Number of applications for pension splitting orders filed in family courts, according to Justice Department data obtained by Nockolds through an FOI application

Number of applications for pension splitting orders filed in family courts, according to Justice Department data obtained by Nockolds through an FOI application

Nockolds says the advantage of a pension splitting order is that assets are divided upon divorce, allowing the beneficiary partner to pay a lump sum into their own pension fund or start contributing to a new one. regime.

But some divorced spouses are still opting for old-fashioned pension garnishment orders, where a partner “assigns” pension income to be paid to an ex-spouse after retirement.

Nockolds warns that in many cases this is an inferior choice as it does not prevent an ex-spouse from transferring money from their pension or require them to continue contributing, so unless it is not already being collected, it may be ineffective.

Francesca Davey: Older divorcing couples often overemphasize home, car and other savings while neglecting pensions

Francesca Davey: Older divorcing couples often overemphasize home, car and other savings while neglecting pensions

The government last recorded data on pension garnishment orders in 2019, when around 4,200 were made.

Davey says: “Older divorcing couples often overemphasize home, car and other savings while ignoring pensions.

“Because a pension is usually in the name of a spouse and is associated with their employment, it is often incorrectly assumed that it is not divisible.”

But she warns: “Ignoring retirement assets can be financially disastrous for someone with little or no foresight.

“If a spouse has built up even a modest end-of-career wage pension, chances are it’s worth considerably more than the average British home.”

“While most people will have a good idea of ​​what their home is worth, far fewer know what their spouse’s pension is worth, what their benefits are worth, or even how many pensions they have or who owns their fund, which leads to a priority bias in the division of matrimonial property.’

Under new no-fault rules introduced in April, couples can now divorce within six months of first asking, even if one partner objects, and the process is largely online – including the service of divorce papers by email.

Financial settlements are always handled in a separate, parallel process that may continue once the divorce is final.

Davey suggests the changes could accelerate the trend of DIY divorces where pensions are overlooked.

She says: “The new rules risk leading to more hasty divorces in which the applicant does not consider all the financial remedies available to them.

“The Online Divorce Portal does not provide advice or make suggestions about the most appropriate financial remedies in different circumstances.”

A Department of Justice spokesperson said of no-fault divorces: “Our changes give couples more time to resolve their issues and a better chance of doing so amicably.

“We are committed to further exploring financial arrangements, including pension splitting, now that these changes are in place and will announce our plans in due course.”

>>> Read the government’s guidelines on no-fault divorces and its future plans below

What are other lawyers saying about the drop in pension splitting orders?

“These numbers come as a surprise, especially in light of recent family court guidance on pensions,” says Claire Andrews, partner at Osbornes Law.

She points to a recommendation that any pension worth more than £100,000 should have an actuarial report to advise on an appropriate share.

Andrews says: ‘There is a good chance no-fault divorce rules will mean more couples reach an agreement without the involvement of a lawyer and large and important assets such as pensions could therefore be overlooked.

“People may want to start the divorce process themselves, via the online portal, as it is now streamlined and easy enough to use.

“However, it is still critically important that legal advice is taken in relation to financial arrangements to ensure that all assets are taken into account and a fair deal is reached for both parties now and until their retirement.

Henrietta Thomas, partner at Burgess Mee Family Law, said: “While the introduction of no-fault divorce reduces acrimony and the scope of disputes, the reforms do not eliminate the need for appropriate legal and financial advice to ensure that the terms of any proposal the financial settlement is fair.

“The decline in applications for pension splitting orders since 2017 is extremely concerning, especially as pensions are often a person’s most valuable asset, providing essential security in retirement.

“The importance of looking specifically at pensions cannot be overemphasized – if a spouse decides to waive a right to the other’s pension, it is crucial that they understand the value of what they are sacrificing and the possible pitfalls .

“As a recent report from the Pensions Advisory Group said, ignoring or accepting to ignore pensions is simply not an option. Advice from a pensions specialist can be crucial in securing a fair outcome in the event of a divorce.

What are the government guidelines on no-fault divorces and financial settlements

The Department of Justice makes the following remarks.

– Its new legislation introduces a period of 20 weeks between the stage of the initial request and the moment when the court pronounces the provisional judgment of divorce (the “nisi decree”).

This provides a meaningful period of reflection and the ability to backtrack, or when divorce is unavoidable, it will allow couples to better cooperate and make future arrangements.

– The government kept the Divorce Act focused on the basic legal process of ending a marriage or civil partnership to ensure that any future changes, including financial arrangements, would be based on this revised system.

– During his time in Parliament, he listened to concerns about financial arrangements and the fact that they can lead to conflict, and he pledged to explore this area further, including pension splitting.

– Divorcing couples can choose to settle their affairs between themselves, or if there is a disagreement over money, property and pensions, a husband or wife can go to family court to resolve the disputes.

The court may ultimately issue one or more financial orders indicating how the assets are divided and has the power to redistribute the pensions between the parties.

– A “one size fits all” solution is not imposed and any court decision will be based on individual circumstances. There is no fixed division of pensions in divorce cases and any decision to make a pension division order will be made on a case-by-case basis.

TOP SIPPS FOR DIY PENSION INVESTORS

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