DIY Divorce - A quick win or a false economy?
The first working Monday of the new year is widely referred to, by those working in Family Law, as “Divorce Day”. It has been argued that the festive break, which allows for both increased time spent with a spouse but also a period of reflection, is the main reason for the repeated spike in divorce enquiries in January each year.
Another phenomenon that has gained more traction in the media recently, is the rise of the so-called “DIY Divorce”. Touted as a way of saving costs, in many circumstances these DIY divorces can be dangerous. The opportunity for error is so great that the cost of potentially rectifying mistakes can often exceed legal fees several times over.
To set the record straight, Partner and Chartered Financial Planner, David Dodgson spoke to Kirsty Henderson, a Family Solicitor at leading national law firm RWK Goodman, with the hope of busting some of the common myths surrounding getting divorced, and to find out if just doing it yourself really is a viable option:
David: What do you see as the most common misconceptions around the process of getting divorced and the approach of family lawyers?
Kirsty: That 'If you instruct a solicitor, you have to go to Court.' It is a common misconception that if you instruct a solicitor you will have to go to court. This is false and there are a number of ways that a solicitor can assist divorcing couples to reach an agreement outside of the court process. A few examples include negotiation, mediation and round-table meetings. Many of these options can be cheaper and quicker than going to court. However, it is important to remember that whichever option you do choose, any agreement will need to be formalised by a Court Order as without this, it is not legally enforceable (see below).
That 'it (divorce) will become a battleground.' Many people believe that if you instruct a solicitor, they will increase the acrimony and will prolong matters to generate more fees. This is far from the reality and the majority of family solicitors want things to remain amicable and a solution reached as soon as possible. Further, all solicitors have a duty to act in their client’s best interests.
In addition to this, many family solicitors are members of Resolution which is an organisation of lawyers and other family justice professionals who are committed to following a non-confrontational and constructive approach to resolving family issues.
That 'the Final Divorce Order (previously Decree Absolute) severs financial ties.' Another common misconception is that obtaining a Final Divorce Order severs financial ties. It is crucial that divorcing couples understand that Divorce and Financial Remedy Proceedings are separate. If a Final Order in respect of finances has not been made, both spouses financial claims remain open even after the Final Divorce Order. This means that either spouse could make a financial claim at a later date when one ex-spouse’s wealth may have substantially increased.
"My first question would be do you understand what you or your spouse may be entitled to? My second question would be how do you know your agreement is fair? My third question would be do you not want to protect your future?"
David: We are getting an increasing number of clients coming to us who are choosing to adopt the “DIY Divorce” route; however, we have a sense that this might be a false economy. What are your thoughts?
Kirsty: My first question would be do you understand what you or your spouse may be entitled to?
It is important to understand the law and what a court could award so divorcing couples are aware what they or their ex-spouse may be entitled to. Assets can also be divided in many different ways and divorcing couples should be aware of the different options. Without understanding this, an ex-spouse could be missing out or giving away more than necessary - both are to their financial detriment!
Each case is unique, and financial settlements on divorce should be tailored to each divorcing couple. What has worked for one divorced couple might not work for another and does not mean that they will get a similar outcome. Trying to get legal advice from family, friends or the internet is therefore unlikely to be particularly helpful.
My second question would be how do you know your agreement is fair? As solicitors we have a duty to act in our clients’ best interests. We advise our clients to go through a process of what is known as “full and frank” disclosure. This is where divorcing couples exchange financial information to ensure that each of them has a full and clear understanding of the other’s assets, income and liabilities. Without this, how can they be sure that the agreement they are negotiating or the offer that has been put forward is fair? If one spouse is hiding or has forgotten certain assets, an offer which appears to be a 50/50 split may not be!
My third question would be do you not want to protect your future? As mentioned previously, divorcing couples can reach an agreement between themselves but this is not enforceable unless it is formalised by a Court Order. For example, if five years down the line one spouse stops making the maintenance payments they agreed to make to the other, it is not possible to enforce payment if there is no Court Order. Another example is where one spouse has accepted a lump sum of money from the other, say £500,000, and agreed this is in full and final settlement of their claims. Without a Court Order, there is nothing to stop the receiving spouse applying to the court five or ten years later asking for more money. Obtaining legal advice and a Court Order is therefore not only going to protect divorcing couples but may also save them money in the long run.
David: Recent evidence has suggested that a failure to seek adequate legal and financial advice during financial negotiations on divorce has resulted in a reduction in pension sharing orders, which could prove to the detriment of the weaker financial party. Are there any other technical areas which, if overlooked, could prove detrimental to a divorcing couple?
Kirsty: As you have highlighted, misunderstanding pensions can be of a detriment to the financially weaker spouse in a divorce. Ignoring them is not a sensible option and divorcing couples should understand the value that they might be losing, retaining, or acquiring.
Further, the Cash Equivalent Transfer Value of pensions has limitations and, in some cases, can be a poor reflection of the value for divorce purposes. It may therefore be necessary to instruct a pension expert to fully understand the values and options available such as Pension Sharing and/or Pension Offsetting.
“Nothing can be said to be certain, except death and taxes” – Benjamin Franklin 1789. This certainly still rings true, and tax should be an important consideration for any divorcing couple. It is advisable to take specialist tax advice before finalising financial settlement proposals to establish whether there will be any tax liability, such as Capital Gains Tax and/or Stamp Duty Land Tax, and who will be liable to pay it. If this has not been considered, one spouse may end up with less than they bargained for!
The true value of assets should not be overlooked. If divorcing couples cannot agree on the value of an asset or one spouse does not know if the value asserted is accurate, they should consider appointing an expert. A common example of this is the value of a family business. Asset values which are inaccurate or mispresented are unlikely to secure a fair outcome and could enable one spouse to make an application to vary a Court Order in the future.
Obtaining the Final Divorce Order (previously Decree Absolute) before a Financial Court Order
The timing of obtaining a Final Divorce Order should be given careful consideration. One reason for this is because if one spouse were to die halfway through negotiations, if there is no Final Divorce Order the surviving spouse will remain entitled to all the benefits that accrue to their status as a widow/widower, for example pension benefits. If a Final Divorce Order has already been made, these benefits will be lost. Further, once a Final Divorce Order has been made, the surviving ex-spouse is treated as having died on the date of the Final Divorce Order and thus any inheritance will be lost (unless there is contrary evidence of this intention in the Will).
David: There seems to be a perception that getting a divorce is an expensive and long-winded process, is this the case?
Kirsty: Obtaining a Final Divorce Order will take a minimum of 6 months due to the statutory requirements. In addition to this, there will be court processing times which are likely to extend the process. Firstly, a divorce application needs to be made and issued by the court. Following this, provided the divorce is agreed, there is a 20-week waiting period before the Conditional Order can be applied for (which is essentially the halfway house to Divorce). After the Conditional Order has been granted, there is a further waiting period of 43 days (6 weeks and 1 day) before the application for a Final Divorce Order can be made. Only the Final Divorce Order brings the marriage to an end.
The court fee for the Divorce Application is currently £593. If a solicitor is instructed, fees will also be incurred for their costs which may include drafting the Divorce Application, Conditional Order Application and Final Order Application.
Financial Ties and Arrangements
It is important to remember that the divorce does not sever financial ties. For me, the process of resolving financial matters is where the perception that ‘getting divorced is an expensive and long-winded process’ comes into play.
The timescale for resolving financial matters varies considerably and is dependent on the divorcing couple themselves. For example, some have their finances all in order, are forthcoming with full and frank disclosure and negotiate reasonably. In these cases, an agreement is likely to be reached more quickly and the costs are likely to be lower than where the divorcing couple have been slow to provide full disclosure and negotiate constructively. Further, in those latter cases a court application may become necessary which inevitably increases costs and prolongs matters. The length and cost of financial matters therefore much depends on the divorcing couple’s approach and actions.
David: So in summary, you would advise against DIY Divorce?
Kirsty: Yes, there is too much at stake.
Divorce can be a lengthy process and is often far more complex than most people anticipate. It is a period where many important financial decisions are being made that will affect both parties for potentially the rest of their lives. For these reasons, many people opt for professional financial advice to help guide them through this difficult time.
Our financial advisory team have extensive experience in this area and help many clients during the divorce process. If you’re interested in finding out more please give us a call on 0333 323 9065 arrange a free initial consultation to find out how we can help.
Note: This article is intended for general information and does not constitute individual financial advice. The FCA does not regulate wills, tax, estate or cash flow planning.