The money struggles causing divorce delays
As if the first Monday of January isn’t tough enough – the miserable weather, returning to work, coughs and colds — it’s also “Divorce Day”, the day when, festivities over, there’s a spike in enquiries to solicitors about untying the knot.
But even this new year’s resolution is getting harder for many unhappy couples. New research from Legal & General shows one in six recent divorces were delayed because of financial pressures. And figures just out from Co-op Legal Services paint a similar picture – almost three-fifths of married Brits who want to divorce felt they couldn’t due to their personal financial situation.
According to L&G’s data, the typical upfront costs of divorce come in at around £2,500, and one in seven people (15%) will go into debt to fund it. Income concerns (13%), rising living expenses (12%) as well as divorce costs (12%) are the key reasons couples stall over their separation. Once couples do separate, they take a £9k hit in reduced income in that first year.
‘Understandably we focus much of our energy on the emotional side of separation but, as our research shows, money is an important factor that shouldn’t be ignored,’ says Paula Llewellyn, chief customer & strategy officer, Legal & General Retail, ‘Not only are people having to stay in marriages longer, because of their finances, but they are also facing increased struggles once they go it alone.’
Ben Glassman, financial planning partner and head of family & divorce at Evelyn Partners says: ‘Money worries can certainly add to the strain on a marriage, but for a few couples they can also weaken the motivation to separate. Some might delay separation because they do not want to incur the costs it entails and don’t like the look of solo life’s financial challenges.
‘The ongoing elevated cost of mortgages, alongside the generalised increase in the cost of living in recent years, has made separation for some couples a trickier financial conundrum than it had been previously. For those who do decide to break up, the fate of the family home and the splitting of financial assets like pensions are often some of the most difficult issues to reach agreement on,' says Glassman.
'No fault' divorce: how it works
Although no fault legislation, enacted in April 2022 means that couples can now divorce on the grounds their marriage has irretrievably broken down, without the need to attribute blame, the new system hasn’t led to an increase in the number of couples taking this route, according to Family Court statistics.
“A divorce can now be obtained by one person, or jointly, by filling in online forms,”
says Rachael Oakes, specialist mediator and founder of Family Mediation & Mentoring. “At least one spouse will provide a legal statement on the divorce application form to say the marriage has broken down irretrievably. This statement will count as conclusive evidence and it can’t be contested. It makes the process so much easier, less stressful and removes the adversarial nature of the old system, which could undermine attempts to split amicably.”
Any divorces that were started before these changes came in will continue under the old system until they are completed.
While the introduction of the ‘no fault’ divorce should take some of the stress out of process, it doesn’t change anything about the way you will need to sort out your finances.
In reaching a financial agreement, a court usually considers a 50:50 split as a starting point for a long marriage of more than five years as set out in the Matrimonial Causes Act 1973. This will cover property, pensions, savings and any child maintenance.
‘The temptation is to try and “go DIY” over the whole process, including the financial settlement. This is understandable as people are keen to save on fees wherever possible,’ says Ben Glassman.
'But the biggest legal bills occur when there is a dispute over the financial settlement, which is a separate matter to the divorce itself, and can often drag on much longer. An agreement over the splitting of assets that is arrived at amicably, and preferably at an early stage, is important if both parties want to minimize stress and expense.’
According to the Office for National Statistics, divorce in the UK is declining. There were 80k divorces granted in England and Wales in 2022; a 29.5% decrease compared with 2021.
Get on top of your finances
It's important that anyone thinking about splitting up considers these key factors to protect their immediate and future finances:
Getting divorced obviously has a long-term impact on your finances, but reviewing your money management in the short term is also important. “It’s an incredibly expensive time, so it’s easy to get into debt when you’re getting divorced,” cautions Sarah Coles, personal finance analyst, Hargreaves Lansdown.
“Take an hour to work out an emergency budget for the coming months, to keep your costs as low as possible. It’s also essential to think about the mortgage. If you’re both named on it, you’re both responsible for the whole of any repayments, so talk to your ex and try to work out a way to keep payments going. If one of you will struggle, then talk to the mortgage company and see how they can help.” You may be able to switch to interest-only payments for a while or negotiate a payment break if you really need one.
“Consider any joint finances too,” Sarah adds. “If you have a joint current account, tell the bank about the split. They can set it so that you both have to agree before any money is withdrawn. They can also place controls on debts, so nobody takes the opportunity to run up debts in joint names.”Wise up on all aspects of your personal and household finances. If you take an active role in managing your joint finances, you’ll not only feel the benefit now but as part of any discussions on separation, when you have to draw up a list of assets – property, pension, investments, bank account, insurances. The more aware of your spouse/partner’s financial position, too, the better.
Think about your financial priorities, what it costs to run your life and your family's life now. Think about the changing financial needs of the family. If you are likely to have a drop in income post divorce, then this needs to be factored in - right through to your retirement planning. "For example, you may want to focus on your children’s or parents’ financial futures, such as education or care costs, or you may simply want to focus on your own," says Emma Watson, Head of Financial Planning at Rathbone Investment Management. If necessary, take advice.
Plan for the what-ifs. "Consider what could happen to your family should your income fall to zero, or if you became ill or passed away. Putting the right insurance in place would help protect you and your family and mitigate any risk should the unexpected happen," says Emma Watson.
Legal & General also have a new financial health check tool to help you consider key aspects of your divorce finances.
Divorce: Know the costs
It’s important to think of the divorce and financial settlement as two separate matters. You can file for divorce online at gov.uk/divorce (a court fee of £593 applies) but dealing with the financial side of things can be much more complex, costly and lengthy.
Legal aid is only available in situations involving domestic abuse or in some circumstances, via means-testing. If you don’t have the funds and can’t borrow from family or friends, there are also litigation loans applied for via the lawyer.
Mediation could be more cost effective and quicker than going to court, whether you are at the outset of your discussions or if you are close to reaching an agreement on the split of assets but with just a few sticking points. Use the Family Mediation Council website to find a local mediator.
Arbitration is also increasingly common. An arbitrator may charge £2,500- £5,000+
but is much quicker than going to court. Visit Institute of Family Law Arbitrators to find out more. The decision is final and binding.
Whatever the reason for getting divorced, the law isn’t interested in punishing either of you financially, it’s simply there to find a fair division of assets.
Research from Legal & General shows that more than a third of people over 50 see their income reduced after divorce, with an average fall of £10,650. One in four divorces occur after the age of 50.
Online divorce services
As well as filing for your own divorce at gov.uk/divorce, there are also a growing number of companies offering online divorce services from Co-op Legal Services and Quickie Divorce to Amicable.
Katy Daly, founder of Amicable says: "In the UK, the cost of divorce averages at £8,000 per person if a couple uses lawyers to divorce and legalise their financial split. It is possible though to keep costs down, which allows you to work with your ex in a way that is collaborative rather than confrontational. Understanding your own emotions and your partner's has a dramatic effect on keeping things amicable, saving time and money by reducing conflict and arguments."
Online divorce is quicker and less stressful but, you may still want to invest in legal advice if your situation is challenging. Citizens Advice warn against using websites that promise cheap divorce packages. You’ll still have to pay the divorce application fee.
Know your divorce rights
“Lots of arguments between couples come from people not understanding their rights and having incorrect expectations which lead to arguments and entrenched viewpoints,” says Laura Naser, family lawyer and author of The Family Lawyer’s Guide to Separation and Divorce. A fact-finding meeting with a lawyer (find one at lawsociety.org.uk/findasolicitor or resolution.org.uk) is a good place to start.
Divorcing older
"Splitting up is never easy, but it can be a financial disaster when you’re older, because you’ve spent more of your life building your assets – so you have more to lose. If you’re taken to the cleaners during the process, you have far less time to get back on track," says Sarah Coles, personal finance analyst, Hargreaves Lansdown. "It’s vital to get plenty of advice and support during any divorce, but particularly so later in life. Over 13,000 people over the age of 60 got divorced in 2019, which is a difficult age to be starting over."
The average age of divorce is 46.4 years for men and 43.9 years for women. The age group with the most divorces is 45–49 years old, according to Nimblefins.
Find a divorce expert
If you're thinking about a split, get professional financial advice early. “Alongside the legal process, this can help you feel more supported and ensure that the division of assets is carried out in the best way, and ultimately puts divorcees and their families on a better financial footing for the future,” says Zoe Bailey, WealthiHer partner and director of financial planning at wealth management group Tilney. Visit financialplanning.org.uk/wayfinder/find-planner to find a planner.
The myth of the common law spouse
Cohabiting couples are not as well protected under the law as married couples. Only jointly owned assets (such as property, joint bank accounts or investments) will be automatically included in any financial split. What you don’t have is any right over your partner’s own assets, unless you’ve made wills specifying your wishes or have a cohabitation agreement.
Children of cohabitees are protected to some extent under The Children Act and statutory child maintenance will apply. The law can also allow for lump sums, transfer of property, additional top up of maintenance if a parent is a high earner, or the child has specific needs – but only for children under 18.
Value your contribution
Women often believe that if they have not contributed financially to the marriage, they will be entitled to a lower share of the joint assets if they divorce. This isn’t true. If you are divorcing or dissolving your civil partnership, it doesn’t matter whose name an asset is in or who’s the higher earner or primary carer for the children, the court has wide powers to transfer assets between spouses.
Who gets the family home on divorce
Having a roof over your head is so fundamental that it's often hard to think dispassionately about this asset, especially if there are children involved. While your instinct may be to stay in the matrimonial home come what may, there are other options to consider.
Keeping the home doesn’t always make financial sense when taken into context with other assets. A property one lives in doesn’t produce an income and parts of it can’t be sold to meet spending. And higher mortgage rates have also narrowed the options for those needing to buy a new home.
"One spouse remaining in the family home - apart from minimising disruption, particularly where children are involved – has traditionally been the low-cost option as it will avoid some legal, mortgage and property transaction fees. But the spouse who stays will usually have to find the money to buy the other’s share of equity and, if they can’t draw on other assets to do so, the mortgage rate environment could make it difficult for them to obtain the extra borrowing," says Glassman.
Splitting the pension on divorce
According to Shoosmiths, a third of divorcing couples or those in civil partnerships don’t know that they are entitled to a proportion of their ex’s pension.
“People often see the house v. the pension as a trade-off but they do this, in many cases, without even finding out what the pension is worth and also without thinking about how they are going to live in later life. Don’t under-estimate how much a pension could be worth – it could be as much as your home,” says Debora Price, professor of social gerontology, the University of Manchester and a member of the Pension Advisory Group. Read her blog on pensions on divorce here.
Think about what income you will live on when you retire, not just what you need in the immediate future. Legal and General found those in their 50s save on average £57 less each month towards retirement after they split - this could mean up to £30,000 less by the age of 70.
“Pensions are widely underestimated, and our research reveals that the majority of divorcing couples don’t even discuss them. This oversight leads many—particularly women—to miss out on future income that should have been theirs,’ says Myron Jobson, Senior Personal Finance Analyst at interactive investor.
The bottom line
Making sure you talk openly about finances at all stages of your relationship can help set parameters that would protected you should the relationship fail. Consider putting in place a cohabitation agreement or nuptial agreement (pre or post marriage) so your financial boundaries are clear. Financial independent is all.
Don't forget to change your will to reflect your new situation as soon as possible.
* SOURCE: Fidelity International
You Might Also Like
