New research by Aviva suggests that 15% of divorced people did not realise their pension could be impacted by getting divorced. Jim Richards, senior associate at Winckworth Sherwood, comments.
When a married couple divorces in England and Wales, they can reach agreement between themselves as to how their financial assets will be divided or they can apply to court for a judge to decide.
For some, deciding who gets what can seem like an impossible conversation to have, the consequences of not doing so can be significant. Either way, the latest Government figures suggest these applications are reaching their highest levels since 2011 with nearly 13,000 court orders made in the first part of 2021.
Financial remedy applications can include assets such as (but aren’t limited to) property, savings, pensions, shares and high value items such as cars or jewellery – regardless of whether it belongs to one or both parties.
The court is bound in every case to consider whether to sever all financial ties between the parties (known as a ‘clean break’), this may not be possible, so a party (or a judge) might decide that maintenance payments are needed. This can last for a short term to enable an adjustment, or until a pension is available or longer as the case may be.
This is particularly common in divorces where children are involved or where longer-term financial needs can’t be met from the assets available at the time of divorce. For example, if a party has taken a career break to raise children, it may be a few years after returning to work, before they are able to earn enough money to be fully financially independent.
Although maintenance payments are usually time limited, they can last for several years. It is important to note here that maintenance ordered as part of a divorce settlement is entirely separate to child maintenance. If the final agreement contains maintenance payments, either the paying or receiving party can apply to increase, decrease or indeed to dismiss the order. As a rule of thumb, other aspects of the final agreement can’t be varied such as pension sharing arrangements or lump sum payments which is why it is crucial to seek out legal advice when divorcing, to ensure longer term needs are provided for where possible.
It is not difficult to imagine a variety of life circumstances that could lead to someone needing more in maintenance or being unable to continue paying. The law in England and Wales recognises just this and that any maintenance agreed at the time of divorce may no longer be appropriate as time goes on. For example, children may change which parent they live with or become independent and move out of the family home.
In more unfortunate circumstances, the paying party might become redundant or unwell for an extended period, reducing their ability to work. In reverse, either party may experience a sudden increase in income, following a job promotion or new business venture, which might mean the receiving party is less reliant on maintenance payments from their ex-partner.
A maintenance order should also be linked to inflation to ensure payments rise each year automatically. Latest figures show CPI inflation at 7%, the highest in almost a decade. If an order allows for increases in line with the RPI/CPI, this will offer some protection, but if not, the value of the payments will diminish over time.
Whatever the reason for making an application, taking early advice is crucial, for both the paying or receiving party. A solution-focussed family lawyer will be able to guide individuals through the application process, whilst avoiding unnecessary conflict. They’ll also be able to provide guidance on how a court is likely to view any change in finances and what a reasonable level of maintenance is to suggest to an ex-partner, if any at all.
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