Could the “no-fault” divorce system undermine the sharing of pensions on divorce?

frustrated woman looking at financial paperwork/laptop

As you’ll know, in April 2022 the former “blame-based” divorce system was replaced by a new, no-fault divorce approach. This means that couples must no longer provide a fault-based reason or wait a lengthy amount of time before starting divorce proceedings.

The Divorce, Dissolution and Separation Act 2020 reforms the process for divorce, with the changes aiming to reduce the potential for conflict between divorcing couples.

While this move has been widely welcomed as a way of streamlining the divorce process and reducing the potential for an acrimonious “blame game”, there are concerns that it could further undermine the sharing of pensions when a couple separates.

As you have previously read, changes to pension sharing laws more than two decades ago have not made formal splitting of pension assets on divorce commonplace.

Indeed, figures suggest that just 12% of divorces include any element of pension sharing now – something experts believe the new divorce laws could undermine yet further.

New divorce laws could undermine pension sharing

A new paper authored by former pensions minister Sir Steve Webb has considered the new divorce law and its potential impact on the sharing of pensions in England and Wales.

It found that, while the existing system isn’t perfect when it comes to sharing pension assets, the situation could be worsened by the new legislation.

For example, it could be easy for divorcing spouses to underestimate the potential value of pension wealth when they separate – perhaps using a current value as the basis for an agreement rather than the potential future value. A salary-based pension income may be worth far more than the family home.

On divorce, many couples also have other priorities, such as having somewhere to live and providing financial security and support for children.

We’ve previously reported studies that show:

  • Half (49%) of divorced respondents admitted to not discussing pensions during their divorce proceedings.
  • More than half (52%) of women do not know their rights or are unsure of them when it comes to divorce and their partner’s pension.
  • Almost one in two people either wouldn’t know what to do when it came to dividing pensions when they separate or hadn’t considered that their and their partner’s pensions could be included in a divorce settlement.

Sir Steve’s report highlights two key areas of concern.

Firstly, under the new system, a spouse may receive notice that a divorce application has been made just a few months before the court is asked to grant the first divorce order. So, in this case, there may be little they can do to stop or delay the process.

In addition, the former minister argued that people may also be reluctant to raise issues surrounding the division of pension assets for fear of being seen as “obstructive” in a new system designed to reduce conflict.

Sir Steve said: “One group currently at high risk of retirement poverty is divorced women. In large part this is because relatively little attention is often given at the time of divorce to a financial settlement which gives proper weight to pension wealth.

“It is entirely understandable that divorcing couples focus on other matters, but the risk is that people simply do not understand the value of pensions.

“While there is much to commend the new divorce law, it would be very unfortunate if a by-product was that even fewer divorces were accompanied by a fair sharing of the couple’s overall wealth, and in particular of pensions.”

Clients need to remember to focus on pension assets when they divorce

Considering that fewer than 1 in 8 divorces include any formal pension sharing already, it’s clear that more needs to be done to ensure a fair split of assets on divorce.

As a major report from the University of Manchester has revealed, it’s an issue that often affects women far more than men. Indeed, their study found that divorced women’s pensions are “worryingly low”.

A concern with no-fault divorces is that, with a streamlined and easy online process, many couples will either fail to take pensions into account at all when dividing assets, or grossly underestimate the value of these assets.

Family law barrister Rhys Taylor told the Independent: “I very much welcome the new divorce law, but the family justice system needs to be astute to avoid the law of unintended consequences.

“So often pensions are the last thing anyone really wants to think about, especially on divorce. Care needs to be taken to ensure that the fair distribution of pension wealth on divorce is not overlooked in this brave new era.”

Get in touch

If you have clients who are divorcing, we can help them to ensure a fair and equitable split of their pension.

We’ve worked with solicitors for more than 20 years and have become one of the UK’s leading authorities on pensions and divorce. To find out how we can help you and your clients, email or call us on 0118 987 6655.