Why “DIY divorce” couples are at risk of losing out financially – and how we can help

close-up of unhappy young couple

It’s now been more than 18 months since the new “no-blame” divorce laws were introduced in the UK.

The legislation has been designed to give married couples the power to start divorce proceedings without having to apportion any culpability for the breakdown of the relationship, or separate for at least two years.

While updating what many considered outdated divorce laws has been largely welcomed, there are concerns that many individuals – often women – are losing out financially as they try and conclude their divorce without seeking advice.

Read on to find out why divorcing “on the cheap” could have serious later-life consequences.

7 out of 10 divorcing couples don’t split pension assets

When it comes to splitting wealth on divorce, assets such as property and savings often end up being the priority. However, this can ignore pension wealth, which can often be one of the most significant assets in a marriage.

And, a failure to seek advice when separating can mean many couples overlook significant issues during the divorce process.

A new study by the University of Bristol, reported by the Guardian, found that more than 1 in 10 couples in England and Wales sought no advice or information to help them with their divorce. Only 2 in 5 divorcees made use of lawyers as a source of information, advice, or support.

Emma Hitchings, professor of family law at the University of Bristol, said that a DIY approach meant couples were “bypassing a legal system designed to achieve fairness […] leaving women worse off and putting their financial security at risk.”

Research published by the Telegraph has revealed that, worryingly, 7 of 10 divorcing couples don’t share pensions when they separate, with 1 in 5 saying they had never even considered dividing pension wealth.

Hitchings adds: “Without all assets, particularly pensions, being considered on divorce, the future financial security of many women, who generally have smaller pension pots than men, is being put at risk.”

The gender pension gap at retirement is significant

A failure to split pensions is one of the key reasons that a significant gender gap exists when it comes to retirement income.

Research by the University of Manchester has revealed that divorced men who are not cohabiting in the 45 to 54 age group have median pension wealth of £42,000 compared to similar women’s £16,000.

In the 55 to 64 age group, the disparity is even more pronounced, with men having median pension wealth of £100,000 compared with just £19,000 for similar divorced women.

If couples attempt a DIY approach without seeking advice, this could leave one party disadvantaged.

In a common scenario, one party takes the property while the other takes the pensions (and other savings/investments). While this may be an equitable split at the time, the party taking the property cannot generate a retirement income from it unless they sell it later on – and then they have the issue of where to live!

Couples have 3 options when it comes to pension sharing

If you’re working with couples who are separating – especially where there are significant pension assets – then financial advice can help individuals to understand what a fair split could look like.

In England and Wales, the total value of the pensions that each party has built up is taken into account. Crucially, this doesn’t only mean the pensions that either partner built up while they were married or in a civil partnership, but all of the pensions (except the basic State Pension).

Since 2000, there are three main options for couples to split pension wealth:

  • A formal Pension Sharing Order. Here, the partner without the pension receives a share of the pension benefits as a “pension credit” at the time of the divorce.
  • An attachment order. This allows the partner without the pension to receive income and/or lump sum payments from it in the future. However, they have no control over when benefits may be paid.
  • Here, the value of any pension is offset against any other assets. One party keeps their pension and, in return, the ex-partner receives a greater share of the other assets.

If you are working with clients going through a divorce, and you want to ensure that any pension assets are shared fairly, we can help.

We can also provide ongoing financial advice to any individuals looking for help understanding what their finances might look like after the divorce.

Email or call 01454 416653.

Please note

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.

What do our clients have to say?