Divorce: can you afford to split?
October 27, 2004

Antonia Senior and Mark Atherton explain why dividing the spoils is becoming more costly than ever when a marriage collapses
A MODERN fairytale: boy meets girl, and after a series of comedic misunderstandings, they fall in love. Boy proposes to girl and they take on massive debts to fund a £15,795 wedding, the current average price of the full works. Boy and girl struggle with the debts, until fissures in the relationship deepen. Boy and girl get divorced, losing £25,575. More than £41,000 out of pocket, they start again.

Depressing as this fairytale is, it is the new reality for many couples in Britain. Last year, 153,490 couples divorced after an average of 11 years of marriage. But the rising tide of divorce comes as the cost of breaking up is spiralling ever higher. Norwich Union, the insurer, calculates that the average divorce in the UK now costs £25,575, as couples spend cash on lawyers and incur the costs of unwinding interdependent finances.

Even if a divorce is amicable, the bills mount up. If it is acrimonious, you will pay dearly. Sarah Anticoni, a partner at Charles Russell, the law firm, says: “Asking how much it will cost is a question of licking your finger and sticking it in the wind.”

Ms Anticoni says that divorce lawyers are seeing an increasing number of high-earning women facing claims on their assets from lower- income husbands. She says: “More women are in a better financial position than they were, and more men are making claims against women.”

Whichever partner holds the bulk of the assets, divorce can be messy when the family wealth is split into individual shares. The negotiations involve three stages: the organisation of the divorce itself, the custody of any children and the financial settlement.

Obtaining the divorce itself is likely to cost at least £1,000, including court fees, administration costs and payments to lawyers. The average spent on legal fees, according to Norwich Union, is £1,694. But if there are significant disputes and a full court hearing is needed, this will soon escalate.

Ms Anticoni says that deciding on custody of children should not cost anything, provided that both parties agree on the best way to proceed. If there are significant areas of dispute, try mediation services before calling in the lawyers.

Settling the financial deal is the point at which the cost of divorce mounts. Ms Anticoni says: “The best money you can spend is making the financial deal watertight.”

The starting point of most settlements is that, after a long marriage, there should be a 50-50 split of assets. In the eyes of the courts, 12 years is a good indication of a long marriage. The Ray Parlour case, in which the professional footballer was ordered to pay his wife 37 per cent of his income for the next four years, sent many high-earners into panic. But lawyers say that the Parlour case was unusual because the footballer has a huge income but few assets. Normally there would be more assets to split after a long marriage, so there would be little need for continuing sharing of income.

There tend to be two main assets to deal with, the house and the pension.

More than a third of couples are forced to sell their marital home when they split up. The average cost of moving from one household to two is £8,772.

Many couples will not be able to afford two new mortgages, so one or both of the pair end up renting. Jonathan Benson, of Life Change Financial Management, a specialist firm set up to help divorced people, says: “Whatever route the couple chooses, it means they will face all the costs of setting up and running at least one and possibly two new households — frequently on the same income as before.”

A pension pot built up over a working lifetime can be worth as much as a family home. There are three ways of dealing with a pension if only one partner has built up substantial rights.

The first allows one partner to give up any rights to the pension in exchange for cash or other assets. Known as offsetting, this often enables one partner to keep the house in exchange for giving up any future pension rights. While this may seem an ideal immediate solution, it can leave one partner relying on the state to fund his or her retirement.

The other option is for the courts to place an earmarking order on the pension. This keeps the fund intact until retirement. At this point, both partners receive a share of the tax-free lump sum or the continuing pension payment. The downside is that the couple need to stay in touch and are unable to sever their financial ties. The other problem is that an earmarking order ends with the death of the partner who holds the pension or the remarriage of the partner without the pension.

The last option is pensions sharing, which splits the rights to a pension between the couple. Normally, a company pension scheme will split the pot and give the spouse a cash transfer, which must be used to fund an alternative pension.