- Shift in Divorce Trends: Rise of Hazardous Pension Attachment Agreements Amid Divorce Surge
- Options for Handling Pensions in Divorce: From ‘Clean Break’ to ‘Earmarking’ and Offset Approaches
- Potential Risks of Pension Attachment: Inadequate Guidance, Drawbacks, and Misaligned Priorities
Increasing numbers of divorcing couples are entering into hazardous pension attachment or ‘earmarking’ agreements, while ‘clean break’ pot splits remain relatively stable, according to the data.
According to solicitors, pension attachment orders are typically the worst option because the pension recipient may cease contributing to their fund, and the agreement expires upon their death.
According to Francesca Davey, principal associate in the family law team at Nockolds, which obtained figures on recent trends from the Ministry of Justice, “the rise in popularity of pension attachment orders is puzzling because, in the majority of cases, pension sharing is more advantageous.”
It is doubtful that many individuals pursuing pension attachments are receiving adequate guidance.
Following reforms in the spring of 2022, couples can now get divorced within six months of filing, even if one partner is opposed, and the process is primarily online, including the service of divorce papers via email.
Financial settlements continue to be handled in a distinct, parallel process that can continue after the divorce is finalized.
Many DIY divorce couples ignore pensions, even though they may be their second-largest asset after the family home.
Three main ways to divide pensions in a divorce: clean break, pension sharing, and pension sharing. One spouse setting aside a portion of the income to be paid to an ex-spouse after retirement. And offsetting their value against other assets.
Before reaching a divorce settlement, numerous authorities advise consulting a financial advisor and an attorney.
Nockolds’ Ministry of Justice Freedom of Information request discovered 119,700 divorce applications in 2022, up from 108,300 in 2021. The figure for 2021 was slightly less than the 109,300 who divorced in 2017.
Nonetheless, the law firm discovered a trend towards ‘inferior’ pension attachment orders. Even though the Ministry of Justice ceased disseminating data on them in 2018 when there were approximately 4,600.
From April to December 2021, there were approximately 4,200 applications for pension attachment orders. However, only fragmentary data is available. In 2022, however, the number increased to 7,700.
Pension-sharing order applications dropped from 36,200 in 2017 to 23,600 in 2021 and 26,200 in 2022.
Nevertheless, despite a significant increase in the number of divorces in 2022, the proportion of applicants for pension-sharing orders remained relatively unchanged at 22%.
According to Davey, the advantage of a pension-sharing order is that the fund is promptly divided between the spouses. Allowing the applicant to plan and know exactly what is going into their pension pot.
A pension attachment order is problematic unless the pensioner is already in drawdown since they may cease paying. Pension attachment orders expire automatically upon the pension holder’s demise, which is a significant disadvantage.
If you remarry without a proper financial order, you lose the right to petition for many of the usual financial orders, such as a pension attachment order, and you will miss out on valuable claims.
Pension attachment orders are ‘typically considered an inferior financial remedy,’ according to David Davey, but the increase in their use could be partially attributed to the rise in silver divorcees, as they are most appropriate when a pension is already in drawdown.
However, she adds that the average age of divorce has been steadily increasing. So this does not adequately explain the recent surge in pension attachment order applications.
The average age at divorce is 46,4 years for men and 43,9 years for women; between 2005 and 2015, the number of men divorcing at age 65 or older increased by 23% and the number of women by 38%.
Nockolds also cautions that the online divorce process does not emphasize the importance of legally binding financial orders to applicants, so divorcing couples seeking to reduce costs may believe that a personal agreement over finances is sufficient.
Davey states, “Private agreements are not legally binding, and they frequently dissolve over time. Especially when one of the parties begins a new relationship.” Regardless of whether one side violated a personal agreement, the court rarely reopens a divorce settlement.
Are ‘DIY divorcees’ ignoring pensions?
Many legal and pension experts fear that DIY divorcing couples overlook pensions. Even though they may be their second-largest financial asset after the family property.
Davey says it’s a common misconception that one spouse’s employment-related pension can’t be shared.
‘Ignoring pension assets can have calamitous financial consequences for those with inadequate or no retirement savings. If a spouse has accumulated even a modest final salary pension. There is a strong likelihood that it will be worth significantly more than the average UK home.
While most people have a decent idea of how much their home is worth, far fewer know how much their spouse’s pension is worth, how much its benefits are worth, or even how many pensions they have or who their fund is with, resulting in a misalignment of priorities when dividing marital assets.
Sarah Dodds, a senior associate in the family law team at Kingsley Napley, says it is uncommon to see pension attachment orders in practice today, and it is startling that the Ministry of Justice data indicates they are increasing.
‘While there are certain circumstances in which a pension attachment order may be preferable, for the vast majority of divorcing couples, a pension sharing order would be the best option.
The introduction of pension-sharing orders in 2000 (where a separate fund is created for the recipient immediately) was widely applauded, and while the pension-sharing order procedure is not flawless, it avoids some of the major pitfalls of a pension attachment order.
