Covid concerns and the claustrophobia of protracted lockdowns led to increased divorces in 2021. And yet, 2022 saw marriage separations rise even higher.

The increase has been attributed, in part, to the cost of living crisis and changes to divorce law. What remained consistent, though, was the financial unpreparedness of couples who chose to separate.

Recent research reported by PensionAge found that only 13% of divorces since 2016 have included pension sharing. Rising interest and mortgage rates, meanwhile, mean that property splits will be especially important this year.

Keep reading to find out why seeking advice early in a divorce is vital, and how Boolers can help.

Mounting financial stress and the removal of legal barriers saw divorces rise in 2022

Figures published in FTAdviser confirm a 22% increase in divorce applications during the second quarter of 2022, compared to the same period in 2021. For Q3, the increase was 8%.

Divorce law changes

The Q2 rise has been partly attributed to new “no blame” divorce laws that came into effect in April 2022.

Rather than needing to allocate blame – or having been separated for at least two years – the changes mean an application can now be made online. There are concerns that this could lead to assets, and especially pensions, being missed when splits of wealth occur.

The April change, highly likely to be at least partly responsible for the Q2 divorce surge, might also be responsible for the drop in divorces from January to March 2022 (compared to the same period in 2021).

When a similar law was passed in Scotland in 2006, a drop in divorces occurred while couples waited for it to come into force. Its eventual arrival was met by a similar spike.

Rising living costs

Financial stress caused by the cost of living crisis has also been blamed for the rise. The economic outlook for 2023 means that these worries are unlikely to be alleviated in the short term.

The BBC recently reported that the UK will be the only major economy to shrink in 2023 according to forecasts by the International Monetary Fund (IMF).

A shrinking economy will likely affect pensions, investments, and property values.

It could also make a huge difference to the amounts received when these assets are split during a divorce – and the affordability of a new property when one or both parties move out of the family home.

Professional financial advice can help but it is needed early in the process

Financial advice can help to ascertain the true value of a couple’s assets, helping to ensure a fair split on divorce. It is crucial, though, that advice is sought early.

A pension could comprise the largest portion of a couple’s overall wealth. In some cases, a partner’s pension might be worth more than the family home.

And yet, PensionAge confirms that only one in eight divorces between January 2016 and August 2022 included a pension split. The issue has been exacerbated by the new “no blame” divorce law.

Rather than waiting until a settlement has been completed – and seeking advice for what to do with the proceeds of divorce – timely advice can ensure each party receives the amount they deserve the first time around.

Even a seemingly simple pension valuation can be complicated without advice

We can help those going through a divorce to ask the right questions, making sure they get the answers they need.

When it comes to splitting pensions on divorce, these questions can be as simple as “how much is my pension worth?”.

While calculating, or requesting, a value for defined contribution (DC) pensions is straightforward, defined benefit (DB) plans don’t build value in the same way. A type of occupational pension, they pay an income based on the number of years of service and the final salary paid.

Whether as the pension holder or the future recipient of a split on divorce, knowing the cash equivalent transfer value (CETV) of all pensions held is key.

We can also help clients to look ahead and think about how their pensions might be best split, whether through:

• Pension sharing
• Pension offsetting
• An earmarking order.

Most importantly, financial advice can help to incorporate these potentially significant changes into an existing financial plan.

The financial ramifications of divorce can be far-reaching, especially in the current climate

Ensuring a fair financial settlement on divorce is important. A separation is emotionally difficult and an equitable financial parting can help to draw a line under a traumatic period, allowing both parties to move on independently.

Any decisions made at this life milestone will have far-reaching consequences. This is especially true of a couple’s pension provisions.

In the current climate of rising mortgage rates, volatile stock markets, and changing legislation, divorcees will want to receive the settlement they deserve.

Get in touch

A divorce might alter priorities and upset short- to medium-term plans, but long-term financial goals will likely remain broadly the same.

Financial advice can help couples work towards a comfortable retirement lifestyle – with enough left over for potential care costs and an inheritance – whatever life throws at them.

If you have any clients with questions about an imminent divorce or any other aspect of their long-term financial plans, please get in touch. Email enquiries@boolers.co.uk or call 0116 240 7070.