Couples will be able to get a ‘no-fault’ divorce next month, largely proceeding online. But the move could mean a disparity in pension wealth, with women hit hardest, experts warn.
The biggest overhaul of divorce law in half a century will take place next month, allowing couples to obtain a ‘no-fault’ divorce within six months.
But as the process will essentially be digitalised, with divorce papers sent by email, experts have warned this could “undermine the effective division of pension wealth in divorce”.
In addition, divorced women “could be at high risk of retirement poverty,” according to the co-authors of a research paper examining the potential impacts of pension splitting under the new divorce system.
Currently, divorce is granted only in cases of “irremediable breakdown” of a marriage. A two-year separation is considered sufficient proof as long as both parties agree.
However, for a faster divorce, a party is required to show “fault” such as alleged adultery.
With respect to retirement wealth, the report notes that there are currently three main ways to consider retirement savings as part of a financial settlement during a divorce:
- Pension splitting – by official court order where a spouse receives a share of the pension, ending up with a pension in their own name and in their own name;
- Seizure of pension – one spouse is condemned to receive a share of the other spouse’s pension when it is paid;
- Pension compensation – pension wealth taken into account at settlement but where a spouse agrees to accept a larger share of non-pension assets (eg, a house) in exchange for giving up a share of the pension.
However, only a third of divorces see a formal financial order, and many of them make no reference to pensions.
The remaining number (two-thirds) could be due to the fact that divorced couples underestimate the potential value of retirement wealth; retreats could be seen as too complex and technical, requiring specialist knowledge, and when children are involved this can lead to less attention being given to retreats.
“All of these problems are linked to the current system, and research indicates that divorced women often end up with very low levels of pensions in retirement. The new divorce proceedings could make matters worse,” according to former pensions minister and LCP partner Steve Webb and Rhys Taylor, family law lawyer specializing in divorce pensions at The 36 Group.
New Divorce Law
The April 6, 2022 amendments remove the “fault” requirement, allowing either or both parties to file divorce papers online. When one party files for divorce, they then have 28 days to notify the other person. This notification should be sent by email by default, although a printed confirmation of the email sent should also be posted.
Twenty weeks after the first filing, an application can be made for a “conditional order” of divorce (nisi decree) and after 26 weeks, an application can be made for a “final order” of divorce (absolute decree).
Since divorces will be granted without fault, there is little the other person can do to stop the process if they do not want the divorce, unless the proper procedure has been followed.
While the move to ‘no-fault’ divorce has been welcomed and should streamline the process, concerns are growing about what it means for the pension wealth of divorced couples in England and Wales.
As part of a new article ‘You have an email’ co-authors Webb and Taylor said the new system emphasizes speed, so there’s little time for any real discussion or debate about pensions.
“The crucial area of pension splitting in divorce could be even more neglected than it is now,” they warned.
Webb and Taylor explained that in some cases, a spouse may receive notice that a divorce petition has been filed just months before the court is asked to make the first divorce order.
They will have to deal with a range of practical issues, including childcare, the impact on living conditions and short-term financial support after the divorce.
“In this context, taking the time to ensure that pension rights are included in any settlement and properly assessed can be a low priority. They may also be reluctant to raise pension issues for fear of being perceived as ‘obstructive’ or ‘difficult’, in a new system designed to reduce disputes and the need to prove fault.
“Little understanding of the value of pensions”
Webb said: “One group currently at high risk of retirement poverty is divorced women. This is largely because relatively little attention is often paid at the time of divorce to a financial settlement that gives appropriate weight to retirement wealth. It’s completely understandable that divorcing couples focus on other issues, but the risk is that people simply don’t understand the value of pensions. While there is much to be praised from the new divorce law, it would be very unfortunate if it resulted in even fewer divorces being accompanied by a fair sharing of the couple’s overall wealth, and in particular of pensions.
Taylor added, “I very much welcome the new divorce law, but the family justice system has to be smart to avoid the law of unintended consequences. Very often, pensions are the last thing you really want to think about, especially in the event of a divorce. Care must be taken that the fair distribution of pension wealth in the event of divorce is not overlooked in this brave new era.
They call for more research and monitoring of what happens during the divorce process, with a particular focus on pension wealth, and scrutiny by the Department of Justice to find out if attitudes and outcomes on pensions are changing. following the new divorce process.