Today is Divorce Day, also commonly referred to as ‘D Day’. Divorce Day falls on the first working Monday in January and it’s said to be the most popular day of the year for couples to start divorce proceedings. It’s also the first D Day since the introduction of ‘no fault divorce’.
A no fault divorce, also known as no blame divorce, was introduced to reduce the complications and friction between divorcing couples as it allows people to separate without placing blame on the partner to prove that the marriage has irretrievably broken down.
Some feel no blame divorces have done much to revolutionise divorces and made the process easier. However, this year there are other reasons why people may find it harder to divorce. Research commissioned by Moneyfarm has found that as many as 27% of people admit that their financial situation is the only thing stopping them from leaving their partner.
Here we unpack our research findings and offer up some key tips on how to deal with one vital asset that is often fought over in a divorce: the pension.
Cost of living crisis and lack of savings
The inevitable drop in standard of living and the belief that they do not have enough money on their own to ever be single were given jointly as the two main financial barriers by 21% of those surveyed in our study. The study found that more than three in ten (31%) of married Brits claimed that even if they found out their spouse had cheated on them, they’d be forced to stay in the marriage because they couldn’t afford to leave. However, 25% say they would be prepared to go into debt to divorce a cheating spouse.
Meanwhile, 18% claim that getting a divorce is out of the question if they wanted to because it’s just too expensive in the current climate, and 17% admit they wouldn’t be able to afford to hire a solicitor to help them with the split. A further 17% said they’d never have enough money to buy their own home if they broke up with their partner and 16% said they wouldn’t have enough income to move into a rental property.
In fact, more than one in ten (13%) of married Brits said they are completely financially reliant on their other half, so the idea of divorce just isn’t feasible. Twice the number of women than men find themselves in this position – 18% of wives are wholly reliant on their partner’s income, compared to just 9% of men.
It’s clear that financial education is still sorely needed as, overall, 49% of men and 54% of women admitted they don’t have a complete understanding and oversight of their household finances.
Pensions are a tricky area
Managing a divorce can be an emotional rollercoaster and sadly it’s not uncommon for divorcing spouses not to come to an agreement on how to divvy up finances – with pensions being a particularly tricky area.
If you are going to go through with divorce plans this month, in 2023 or beyond, Moneyfarm offers 5 tips on how to handle your pension in a divorce.
- Find out how much your pensions are worth
Even if you aren’t divorcing, knowing how much is saved in your pension is a good starting point for planning your future. The state pension is accrued naturally for each person, and it could be shared or not in a divorce. If you haven’t yet reached state pension age by the time you get divorced, the pension will probably be all for you.
- Share your pension information with your (soon-to-be-ex) partner
If the pension won’t be shared because you will receive a larger share of the house or other assets instead, work out how much any pension savings you’ve built up separately are worth. This is crucial: different assets have different ways of providing value to you.
- Work out if you need expert help
Any workplace or private pensions should be considered when settling the division of assets. In Scotland it is simply the assets accrued over the time of the marriage, however in other parts of the UK it can be the entire pension pot. This is often to compensate for one of the parents making some career sacrifices during the marriage period – to raise children, for example. A key question you should ask yourself is: “In retirement, where will my income come from and how much will it be?”. If you have received some assets that may have a different structure, like a house, then you may need to make a different plan to the traditional pension drawdown.
- Know your options once you know the value of your pensions
If the pension(s) were shared when you got divorced or dissolved your civil partnership, check how much your pension(s) are worth now and work out how much you might be able to retire on. It is important to have a plan in place for your retirement. Knowing how much you can have at the point of retirement will determine your income through retirement and you can plan your life accordingly.
- How best to reach an agreement with your (soon-to-be-ex) partner
Before reaching an agreement, you should think about your economic needs at retirement age. Ask yourself: “Where will I live? With who? Doing what? How much will it cost me to live the way you want?” The agreement should be consistent with your future needs, your pensions, and the assets you will eventually receive.
*Capital at risk. Tax treatment depends on your individual circumstances and may be subject to change in the future.
