No-fault divorces: How do they work and how can couples best split their assets?

On the first working Monday of every New Year, divorce lawyers are inundated with enquiries from unhappily married couples.

But while new ‘no fault’ divorce legislation introduced last spring has made splitting up simpler and speedier, the cost of living squeeze on household finances may deter some couples from going ahead on ‘Divorce Day’ next week.

Although divorce enquiries have soared since the pandemic, many people are deciding not to go through with it in the current climate, according to Stowe Family Law partner Niamh McCarthy.

‘Over the past few months, I have spoken to many people asking about divorce, but who have been putting it off due to financial worries – most notably concerns about not being able to afford to live alone,’ she says.

A recent survey by Stowe of 380 people aged 25–74 who are married, living together or with a partner found 30 per cent are staying in their relationship due to concerns about the cost-of-living crisis.

Yet at the same time, nearly 60 per cent fear current financial pressures might lead to the breakdown of their relationship.

‘With so many distressed couples not feeling financially free enough to come out of their relationships, we might not see much of a rise in divorce applications on and around this year’s Divorce Day,’ says McCarthy.

The survey also found 72 per cent were not aware of new no-fault rules, which allow couples to get divorced within six months of first applying even if one partner is opposed.

The process is largely online, including the serving of divorce papers by email. But financial settlements are still dealt with in a separate and parallel process which can continue after the divorce is final.

Below, we explain the new process and round up tips from money experts on how to split your finances in a divorce. 

How have divorces changed?

Under the old law, divorces were only granted if there was an ‘irretrievable breakdown’ of a marriage.

Either one spouse had to allege ‘fault’ by the other – like adultery, unreasonable behaviour or desertion – or provided both parties agreed, the couple had to separate for at least two years to show sufficient evidence the split was serious.

A five-year separation was needed to divorce with no consent by one partner.

Couples can now get a no-fault divorce within six months. Joint applications are allowed, or one spouse can file then has 28 days to notify their partner, by email by default plus via a printed confirmation of the email by post.

A conditional order for divorce, previously the ‘decree nisi’, can be applied for 20 weeks after the first filing, and a final order, previously the ‘decree absolute’, can be applied for after 26 weeks.

Divorces will proceed even if one partner is against, provided the right procedures have been followed.

Financial settlements will continue to be dealt with separately, and the Government is still looking at ways to reform this aspect of divorce.

However, experts have warned the emphasis on haste in ‘no fault’ divorces could make splitting financial assets like pensions fairly more challenging. Divorced women in particular often end up with very low pensions in retirement.

See the box below, and scroll down to find out more about the ways pensions can be divided in divorce.

What to consider if you are getting divorced

1. Work out your budget and future financial plan

It’s important to understand your day to day budget if you want to keep a similar lifestyle post-settlement, says Rathbones Investment Management’s head of financial planning Emma Watson.

‘Monitoring your daily outgoings, major bills and any expected future expenditures such as private school fees will give a goal to aim for when negotiating the settlement.’

You should create a financial plan that fits with your goals, and bear in mind your financial settlement can be received as a lump sum or ongoing maintenance payments, she says.

2. Decide how you want to split pensions

There are three main options when dealing with pensions in a divorce – sharing them on a clean break basis, one partner earmarking some of the income to be paid to an ex-spouse after retirement, and offsetting their value against other assets.

We look at the pros and cons of each option here, and run through some further tips on what to do and how to avoid the worst pitfalls when dividing pensions.

Kirsty Anderson, pensions expert at M&G Wealth, says no fault divorces allow marriages to be dissolved in a less confrontational manner and shift the focus to practical decisions.

But she notes: ‘Although this means more attention can be directed to splitting assets, all too often pensions are still overlooked, despite being a valuable, even potentially the most valuable asset a couple has.

‘And this can be an even bigger problem if the divorce occurs later in life when any shortfalls in long-term financial planning are harder to make up.’

Ben Glassman, head of family and divorce at Evelyn Partners, warns couples splitting up not to ignore the state pension.

‘Women especially often have gaps in their career, which could affect their state pension entitlement.

‘It’s important to obtain a projection, particularly when looking to equalise the pension entitlement of the two spouses.

‘The value of a guaranteed and inflation-linked income of £10,000 from age 66 (currently) until death is not to be underestimated.’

3. Try to be clear-headed about the family home

‘Property is usually the biggest asset, and if one partner wants to stay in the family home, they will often have to forgo the majority of the other assets such as savings and pensions,’ says Glassman.

‘One spouse often wants to hang on to the family home when getting divorced, especially where children are involved. But keeping the home doesn’t always make financial sense when taken into context with other existing assets.’

He points out that a property you live in doesn’t produce an income, and it can’t be sold off in parts to meet spending needs.

Also, mortgage rates are no longer ultra-low, and might not be affordable when one party needs to remortgage, adds Glassman.

‘Think about spending as a whole and not just the tenure of the matrimonial home, and if the family home is paramount consider the compromises this might result in.’

4. Consider getting a financial planner at an early stage

We looked here at why you might need financial advice as well as a lawyer even in an amicable divorce.

Ben Glassman of Evelyn Partners says: ‘Many lawyers report that divorce applications proceed smoothly until negotiations begin around the splitting of assets, at which point tensions and misunderstandings start to derail the process.

‘It is therefore important to seek financial advice at an early stage, especially where substantial or complex financial assets are involved – such as pensions, investments or business assets.’

Emma Watson of Rathbones says a financial planner will cost your and your family’s future life and account for variables you might not have considered.

‘This will be key in working out whether any monthly maintenance will be enough, both today and in the future.

‘A financial planner will also look at the lump sum option. Using a budgeting forecast they will project spending alongside future interest rates and inflation, to calculate how much cash will be needed in the long-term.’

She points out that it is better to bring in a financial planner early in the process, because the the opportunity to match a divorce settlement with future lifestyle could be missed if it happens after an initial financial settlement has been agreed.

5. Work out how you might be affected by capital gains tax

Divorcing couples prepared to delay transferring assets between them until next April could make significant tax savings, a legal expert explains here.

For partners no longer living together, the time limit for capital gains tax-free transfers will be extended, from the end of the tax year in which they separate to three years.

And if they have a formal divorce agreement signed off by a court there will be no deadline, says Osbornes Law family partner Lisa Pepper.

However, while this means some couples won’t face a CGT bill at all, after assets are divided up this tax might come back into play later, according to Evelyn Partners tax partner Chris Springett.

CGT could still be levied if an asset received by one of the partners is then sold – a transaction, as opposed to a transfer – unless they can take advantage of allowances or different exemptions, he says.