Couples hit as divorce soars while house prices slump

Couples hit as divorce soars while house prices slump

By Stephen Womack

PUBLISHED: 15:02 EST, 12 May 2012 | UPDATED: 15:31 EST, 12 May 2012

Britain’s economic squeeze is fuelling an increase in divorce and changing the way that couples are being forced to carve up their assets.

There were almost 120,000 divorces in England and Wales in 2010 â€" the latest year for which  figures are available â€" five per cent up on 2009.  

Celebrity couples such as Katie Price and Alex Reid, who were granted the first stage of their divorce in March, should have enough in the pot to ensure a comfortable life after a split.

Split: Katie Price remains wealthy after a high-profile break-up with Alex Reid

But many others find that recession has diminished the value of their assets.

Couples have traditionally used the proceeds from selling the family home to fund a divorce and get started in their new lives. However, falling house prices in most areas of the country have eroded the value of equity in properties. 

This can force major compromises in a couple’s lifestyle after a divorce and it means that there is a renewed focus on other assets such as  pensions.

Fiona Sharp, a chartered financial planner with Almary Green in Cambridge and a specialist in divorce issues, says: ‘Splitting one household into two is becoming increasingly difficult. The capacity of newly divorced couples to get a new mortgage has gone down because there is less equity in properties and tougher lending conditions.’

Mortgage lenders want bigger deposits, are more cautious about how much they will lend and are no longer agreeing to cheaper interest- only loans.

The winding road to a break-up

Married couples are free to split and live apart with immediate effect, but the formal process of divorce starts only when one partner files a divorce petition. This is usually at the local county court or in London at the Principal Registry.

Once issued, the petition will be served on the other spouse, known as the respondent. Providing they do not want to defend the divorce, the petitioner can apply for a decree nisi. But nothing is finalised until the court grants a decree absolute.

As part of the petition, you can indicate your intention to apply for a financial order. Doing this starts a parallel process for the court to grant an order that details how assets and income are to be split. However, if the couple reach an amicable settlement, this can be formalised by the court in the form of a consent order.

Rules differ in Scotland, including the option of a no-frills DIY divorce if no children are involved. More details at scotcourts.gov.uk.

Some refuse to count divorce maintenance payments received from a former spouse as income, or will only do so after a minimum period of continuous payments. NatWest, for example, wants to see six months of payments before it will include maintenance as income. Nationwide Building Society, meanwhile, demands three months of payments, backed by a formal or court agreement.

However, outgoing maintenance payments are usually counted as expenditure, reducing the borrowing power of the former spouse â€" which is usually the husband â€" who pays.

Many divorcees who may have been homeowners for a long time find that they are forced to rent.

Sharp says: ‘It is an issue for some divorcees, especially if one spouse feels they are being forced to “give it all up”.

Renting challenges their expectations of what kind of lifestyle they will have in future.’ More couples are splitting in later life â€" the average age for men divorcing was 44 in 2010, up from 38 in 1990.

Angharad Lynn, a family solicitor with Buss Murton in Tunbridge Wells, Kent, says: ‘With more people getting divorced later in life, they have had the chance to build up bigger pension entitlements, which become an important part of the  settlement.’

Getting expert and independent advice in this area is essential as pensions can be extremely difficult to value. Sharp says: ‘One pound in your pension does not equal one pound in the bank or one pound of equity in a house. The pension may not be paid out for many years, and then it will be taxed, so the divorce settlement needs to reflect this.’

Advice: Fiona Sharp says couples can't find mortgages

There are no hard and fast rules, but typically the face value of a pension pot might be reduced by one-fifth to one-third in divorce calculations.
There are two main ways to treat pensions. One is by offsetting, where the value of a pension is counted against other assets.

For example, one spouse may receive a bigger share of the family home in return for the other spouse keeping their entire pension.

Alternatively, a divorcing couple might agree to split the pension through a sharing order.

This sees an existing fund â€" or a pension in payment â€" split into two, with the pot being shared by both spouses.

This is a formal arrangement sanctioned by the courts and can  apply to personal and workplace pensions. More than one in ten divorce settlements includes a pension sharing order. The top-up State Second Pension and its predecessor Serps can be split.

The basic State pension cannot be shared, but after a divorce one partner, usually the woman, automatically retains their former spouse’s entitlement to the State pension if their National Insurance Contributions record is superior to your own. This entitlement will be lost on any remarriage.

A third option for sharing pensions is what is known as attachment. Here a proportion of one partner’s future pension payments is set aside for the other spouse.

However, few advisers recommend this, not least because the pension can be lost if your ex-spouse dies before receiving it.

- The Money Advice Service has free and impartial information on divorce and finances. For more,  telephone 0300 500 5000 or log on to moneyadviceservice.org.uk.

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