The growing number of DIY divorces that are arranged without a solicitor’s help are putting divorcees, and particularly women, at risk of lower retirement incomes.
The number of applications for pension sharing orders, which are put in place to divide the value of a pension or pension when couples divorce, has fallen by 35% since 2017, dropping from 36,202 five years ago to 23,662 last year, according to figures from the Ministry of Justice. That’s despite the number of divorces in the UK rising by 1.6% between 2017 and 2020.
Since 2018, couples have been able to divorce without hiring a legal representative, and this is usually a faster and cheaper option when circumstances are relatively straightforward.
However, couples may be unaware of their entitlement to their ex’s pension on divorce, under what’s known as pension sharing orders, legal experts are warning. This is essentially when defined benefit or defined contribution pension benefits are split when you divorce, and typically, the partner without or with a small pension receives a share of their partner’s benefits in their name. Read more in our article How are pensions shared in a divorce?
Why women may be worst affected
Quick-fix DIY divorces risk leaving women in particular with less retirement income than they might have been entitled to, as they won’t have received legal help to clarify what they can claim. Current estimates suggest that the difference between the pension pots built up by men and women over their lifetime is 40.3%. According to the Pensions Policy Institute, by the time they reach retirement, the average UK man holds a pension pot of £157,000 compared to just £51,000 by women. Read more in our article Women and the gender pensions gap.
A DIY divorce is, as the name suggests, one that is arranged entirely by you and your ex-partner. You still have to apply through the court in order to make the divorce official, but you may not have a pension sharing order in place.
Melissa Markham, associate family and collaborative solicitor at Whitehead Monckton, said: “The rise in DIY divorces will undoubtedly leave, not just ex-wives, but ex-husbands vulnerable financially, and potentially with less on retirement than they are entitled to.
“The problems I foresee are that they would go on to deal with financial matters themselves, reaching unsuitable agreements which do not meet their financial needs, or those of their children, as well as they should with legal advice. This could happen because parties do not fully understand their long-term and/or specific needs but could also be the result of an imbalance of power between the parties, forcing one party to agree to compromise their position to their detriment.
“Pensions are notoriously complicated and are very often ignored when couples deal with their financial matters without legal advice. This can leave parties without any retirement provision when they should have received a pension settlement to support their financial needs long-term.”
When getting a divorce, there are several options for dealing with pensions, including pension sharing and ‘pension offsetting’, where the value of any pension is offset against other assets. For example, one of you may keep your pension in full, while the other receives another asset, such as the family home.
Who are DIY divorces right for?
While a DIY divorce can be a useful option in an amicable split, they should only be considered if you expect dividing your finances and assets to be very simple, and without the potential for issues or claims in the future. They may be a better option if you have only been married for a relatively short time, and if you don’t have any children.
In Scotland, there are particular rules about which couples can use DIY divorces, and you can find out more about these here. Bear in mind that even if you believe a DIY divorce is the most suitable option for you, it may still be worth seeing a lawyer at the start of the process to see if there is any reason why doing it yourself may not be the best option given the circumstances.
Alistair Myles, family law solicitor and founding partner of Ribet Myles LLP, specialist family law practice, said: “For individuals going through a divorce where there are marital assets such as pensions, property, stocks and shares and cash savings, it is always worthwhile taking legal advice on what a fair settlement could look like.
“Whilst the starting point for dividing assets on divorce is a 50:50 split between the divorcing parties, there are often reasons why there could be a departure from that calculation.
“Where certain assets are difficult to value, or subject to fluctuations in value – such as pensions – it is especially important to take advice on their value now, but also their likely value in the future. It is important to do this to ensure that each party leaves the marriage with as fair an outcome as possible.”
Where to go for advice
Seeking financial and legal advice at the start of a divorce can be extremely helpful. A financial planner can assist with working out and implementing the pension share, as well as reviewing your overall financial situation. They may also provide advice on whether consolidating your pensions is a good option if you end up with several retirement pots, and look at where your retirement savings should be invested.
If you’re considering getting professional financial advice, Aviva is offering Rest Less members a free initial consultation with an expert to chat about your financial situation and goals. There’s no obligation, but if they feel you’d benefit from paid financial advice, they’ll go over how that works and the charges involved.
If you think mediation could be an option to help you resolve things, visit the National Family Mediation website. More divorcing couples than ever are seeking ways to go through the separation process amicably, without the need for lawyers.
Alternatively, you can find a solicitor with the help of Resolution, a membership organisation for professionals who work with separating couples. All members commit to taking a non-confrontational approach to help couples resolve their issues.