The biggest shake-up in divorce law in 50 years

In recent years around 42% of UK marriages have ended in divorce, and while the latest figures released showed a drop in the number of divorces – a surprise for many family lawyers given the number of enquiries they were receiving – the impending Divorce, Dissolution and Separation Bill may change that, as John Williams, Head of Wealth Planning at Nedbank Private Wealth, explains.

As Wuhan and other Chinese cities emerged from lockdowns, the number of divorces was reported to have soared – a trend that other countries felt sure would follow, given the stories of family conflicts as they were “trapped” at home together for months on end. The stress caused by COVID-19 and the daily numbers of those dying, as well as the strain of working (and often schooling children) from home, meant many couples finally realised their happily ever after was probably apart.

However, the UK appears to have bucked that trend – at least for now – given the latest data on the number of divorces in 2020, from the Office for National Statistics (ONS), showed a drop versus 2019 of 4.5%.

For some, the reports were unsurprising given they felt that many marriages had been saved by the chance to find the time to work out their issues. The limited opportunity to fill lives with other distractions, events and outings meant couples had to focus on their own shortcomings.

Changing priorities

And, although the ONS data doesn’t provide this detail, it chimes with the increased numbers of individuals that have wanted to start conversations with us about their finances, having had the time to focus on what is most important to them in their lives – and realising they needed a wealth plan to help them achieve those goals.

For others, the numbers were not a revelation given the backlog of cases built up in the family courts, as proceedings were suspended due to the virus – a scenario we had already seen in the UK when divorce centres processed a backlog of work in 2018. With 8% more divorce petitions filed in that year, it also translated into a higher number of completed divorces in 2019.

Stewarts Law, for example, confirmed that they had seen a 122% increase in the number of enquiries about divorce in the period from July to October 2020

Then there was the camp for whom the numbers were a surprise, given the increased numbers of enquiries they were aware of – or had seen in the case of many of the family lawyers we know. Stewarts Law, for example, confirmed that they had seen a 122% increase in the number of enquiries about divorce in the period from July to October 2020.

But we may never know whether the lockdowns led to lower or higher numbers of divorces given the Divorce, Dissolution and Separation Bill is coming into effect on 6 April 2022, resulting in the biggest shake up in divorce legislation since 1973.

A rundown of the changes

This legislation sees a number of new approaches being applied:

  • Applications cannot be contested. Even if one partner objects, the marriage is over if the other no longer wishes it to continue.
  • The language is being modernised. The terms decree nisi and decree absolute become a “conditional order of divorce” and a “final order of divorce” respectively, while the “petitioner” becomes the “applicant”.
  • The process is changing. The minimum time between submitting an application and receiving a conditional order is increasing to 20 weeks (up from 6 weeks and 1 day) to allow both parties more time to agree on the practicalities resulting from the separation.
  • A no-fault option becomes available. A simple statement that the marriage has irreversibly broken down can be included in the application, rather than having to cite (and prove) adultery or unreasonable behaviour.
  • A joint application will be possible. More than a technical formality, this move should help couples ensure that no fault is attributed to the person filing the petition.

It is these last two that lawyers and others (including me) believe support the most substantive change: that it may help stop the “blame game”. This not only adds to the pain and stress of those going through the divorce, it also affects their circle of family and friends who are often drawn into charged conversations to take the side of one party.

The minimum time between submitting an application and receiving a conditional order is increasing to 20 weeks (up from 6 weeks and 1 day) to allow both parties more time to agree on the practicalities resulting from the separation

The focus on fault often spilled over into other discussions, such as financial settlements and childcare, perhaps as an individual sought “retribution”, which (especially in England and Wales) was never going to be granted.

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Lee Goggin - Co-Founder

Lee Goggin

Co-Founder

A wealth manager’s perspective

But why am I (a wealth planner) writing about this rather than asking a family lawyer to step in?

In the many years supporting family finances, I have seen many decisions made due to divorce that have had unfortunate consequences, not least as the calculations used by the family lawyers – known as the Duxbury tables – have acknowledged flaws and try to apply a generic approach to individuals’ circumstances.

Furthermore, wealth managers are often approached after a divorce rather than during the process. Getting us involved earlier can help couples understand exactly what their separated finances mean for each of their financial futures – and those of any children. The use of cashflow modelling can extrapolate any current decisions into the decades to come and allows for “what if” discussions to be mapped out.

Furthermore, wealth managers are often approached after a divorce rather than during the process. Getting us involved earlier can help couples understand exactly what their separated finances mean for each of their financial futures – and those of any children

I’m also hopeful that the new law may help couples beyond the removal of blame, particularly given that they have another 14 weeks to start to unwind the marriage before the conditional order of divorce is granted.

This is important as although spouses can transfer assets on a “no gain no loss” basis to each other while they are married, that allowance no longer applies following the end of the tax year after separation. A welcome proposal is to extend this “no gain no loss” window to the later of:

  1. The end of the tax year at least two years after the separation; or
  2. Any reasonable time set for the transfer of assets in accordance with a financial agreement approved by a court (or its equivalent in Scotland).

Pensions and mortgages

Another issue which may improve due to this extended timeline is pensions, which often get little attention despite the level of wealth involved, due to their inherent complexity, and since each divorce typically requires a bespoke solution. For example, the value of a pension may be “offset” against other assets in some scenarios, allowing one partner to preserve their pension while receiving more of something else. In other situations, the pension benefits might simply be split during the divorce process itself.

Last but not least, we have heard reports of couples increasingly remortgaging family homes and citing divorce as the reason – either to provide the finances to support the potential legal bills, pay settlements without having to sell assets, or buy a partner out of the family home. Advice could help here too given some wealth managers (when they have banking licences) can lend against investments (an approach known as Lombard lending), which is generally a cheaper and more flexible approach than borrowing against a property.

Another issue which may improve due to this extended timeline is pensions, which often get little attention despite the level of wealth involved, due to their inherent complexity, and since each divorce typically requires a bespoke solution

And there are many more examples where negative consequences for finances could have been avoided if only the separating couples had started a conversation with a wealth manager – either together or separately. Talking to a wealth manager can provide the opportunity to understand what any decision really means and avoid pitfalls that may otherwise only come to light when it’s too late.

Important information

The investment strategy and financial planning explanations of this piece are for informational purposes only, may represent only one view, and are not intended in any way as financial or investment advice. Any comment on specific securities should not be interpreted as investment research or advice, solicitation or recommendations to buy or sell a particular security.

We always advise consultation with a professional before making any investment and financial planning decisions.

Always remember that investing involves risk and the value of investments may fall as well as rise. Past performance should not be seen as a guarantee of future returns.

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