Personal Pension 

No-fault divorces to cause headaches for IFAs

No-fault divorces to cause headaches for IFAs

Government plans to overhaul the laws surrounding divorce could cause massive headaches for financial advisers who could be rushed into helping their clients.

On Saturday (15 September) the government revealed it intends to take action to end the 'blame game' for separating married or civil partnership couples.

In a 46-page consultation paper the government outlined plans for 'no-fault' divorces.

At present, divorcing couples are forced to blame each other for the marriage breakdown on the grounds of ‘unreasonable behaviour’, adultery or desertion, or prove they have been separated for a minimum of two years – even if the separation is mutual.

If the divorce is contested, and a spouse cannot prove 'fault', then couples currently have to wait five years before a divorce is granted.

Ministers want to reduce the antagonism of citing fault and the anxiety it creates, at an already trying time for couples and their children.

Therefore, a new notification process is being proposed that will allow people to notify the court of the intent to divorce, while removing the opportunity for the other spouse to contest it.

The consultation also seeks views on the minimum timeframe for the process between the interim decree of divorce (decree nisi) and final decree of divorce (decree absolute).

Opinion is divided on whether this move to quickie divorce could cause massive problems for financial advisers, who have to unpick their clients' financial affairs in a bid to get them a decent settlement.

Kay Ingram, director of public policy at national IFA group LEBC, cautioned against a rushed approach, which would give couples insufficient time to arrive at a fair financial settlement.

She said: "It is important that due consideration is given to the financial arrangements surrounding the divorce. 

"This must include an assessment of the value of pensions and other investments and a sharing or offsetting of these, or the financial loss to one party may be significant."

Under the existing process, some couples who don't get good legal advice, fail to evaluate pension assets, leaving ex-spouses with inadequate incomes in retirement; ex-spouses lose all rights to state pensions and private dependants' pensions once the decree absolute is issued. 

If this is done before a financial settlement has been implemented the ex-spouse can lose hundreds of thousands of pounds in retirement income and lump sum payments on death, when the pension scheme member dies before implementation is complete.  

Ms Ingram said: "It is essential that the process allows sufficient time for all financial matters to be resolved or many divorcees could lose substantial amounts."

But Samantha Woodham, co-founder of The Divorce Surgery, said ‘quickie divorces’ were only part of the legal picture that financial advisers must consider.

She said this is the paper process of changing a couple's legal status from married to divorced, rather that the far more involved and lengthy process of dividing their assets and finances, for which wholly separate court proceedings and a separate court order are needed.