Online divorce and financial claims – parties beware

With the onset of ‘no fault’ divorce comes a streamlined approach to concluding a marriage. Many couples are now choosing to undertake their own divorce online because of the very much simplified process which now exists.

While this is to be commended as it will certainly save the cost of instructing a solicitor to form fill, there is a stark warning to any individual opting to go it alone and that is to always make sure that consideration is given to concluding financial and pension claims on divorce, in a formal Order of the Court.

Financial Order and Pension Sharing

Although it’s possible to apply for your Final Order (formerly called Decree Absolute) to formally conclude the marriage, unless all of the financial claims have been finalised in an order of the court, they will remain alive and well and could reappear at any time up until a re-marriage, so it’s really important to head them off once and for all.

Any agreement you and your ex-partner have reached about dividing up the assets, even if you have already put it into effect, should be backed up in a formal order, sealed by the court. Once that has been achieved, it’s safe to apply for the Final Order to end the marriage.

Pensions can often be overlooked in divorce settlements even though they can be a major asset built up during the course of a marriage.

Not only is it essential to achieve a final financial order when embarking upon a divorce, but it is also essential to ensure that there is a sealed pension sharing order in place if pensions are indeed to be shared.

When to apply for the Final Order to end the marriage

Where a financial order includes a pension sharing order, the pension sharing order only comes into effect and becomes enforceable, on the later of the granting of the Final (divorce) Order ending the marriage, or 28 days from the date of the pension sharing order.

There is a major risk here. If you apply for the final divorce order before the 28 day period has elapsed, you may be divorced before the pension sharing order comes into effect and if the spouse that holds the pension dies before the 28 days have passed, the pension sharing order cannot be enforced by the surviving (now ex-spouse) and will fail.

It’s important to therefore wait for the 28 day period to elapse before applying for the final order to conclude the marriage if there is a pension sharing order in place.

Applying for the Final (divorce) Order will mean that as the parties are no longer married, they are therefore no longer each other’s next of kin for inheritance purposes.

So, in the event of a death and in the absence of a will, the surviving spouse will not automatically be entitled to the other’s money and property and indeed will not receive any widow’s/widower’s pension benefits.

There are three options when it comes to pensions; pension sharing, pension attachment and pension offsetting.

Pensions – the options

Pension Sharing

Often, an actuary is jointly instructed by the divorcing parties to establish what percentage of a pension needs to be shared. For example, if 35% of a pension is to be shared, that 35% is debited from the relevant pension scheme and given to the other party as a ‘pension credit’ so that spouse may invest it into their own pension plan and administer it completely independently from their ex-spouse’s pension.

Pension Attachment

A less popular choice, a pension attachment order enables a spouse to receive a share of the pension in payment, or a lump sum, or a combination of both, from their ex-spouse’s pension fund – but only when the ex-spouse retires and not before. However, if the member spouse predeceases their ex or the receiving spouse remarries, the benefit of the pension attachment order is lost entirely.

Pension attachment orders may however, be appropriate where there is a large age gap between the parties as the younger spouse would be entitled to receive the benefits as soon as their older ex-spouse retires.

Pension Offsetting

Where the parties have sufficient capital available, the value of the lost pension benefits can be offset against non-pension assets which allows one of the spouses to keep their pension intact and the other to have more capital instead. This works well where one of the parties wishes to retain the family home and offset their ex-spouse’s interest in their pension against their ex’s share of the equity in the family home.