How Will The 2022 Cost of Living Crunch Impact Divorce in the UK?

As a society, we tend to think about the impact of financial crunches on our ability to buy food, pay our bills, and ultimately keep a roof over our heads. Unfortunately, when money becomes tight, the resulting pressure and stress also negatively affects families and relationships. Some are already predicting a “looming storm” and “unquantifiable damage” to families as a result of the cost-of-living crisis. While the cost of living crunch may cause a rise in divorces, it may also affect divorces proceeding through the courts, especially when it comes to reaching financial settlements. In this article, we will take a closer look at how the cost of living crunch may affect those considering divorce and couples in the process of reaching a financial agreement.

Will rising inflation and costs cause divorce rates to rise in 2022/23?

It seems logical to suggest that financial stress may be the ‘straw that breaks the camel’s back’ for those contemplating divorce. But did this happen during the COVID-19 pandemic? In 2020, at the height of the pandemic, anecdotal reports from some law firms suggested they had received record levels of divorce-related enquiries; however, there is currently no official government data from the ONS showing this happened. Indeed, in the year that COVID-19 started to spread, divorce rates fell; according to data from the ONS  in 2020, 103,592 divorces were granted in England and Wales, representing a decrease of 4.5% compared with 2019.

There is little doubt that families are feeling the pressure, and this is likely to exacerbate over the next few months. According to the online comparison website comparethemarket.com, “just over 42% of families with children living at home regularly feel stressed about their finances”. For this reason, rather than separate, some couples may choose to stay together because they rely on both incomes to cover their costs. Alternatively, some may decide to divorce but live together for the sake of financial expediency.

Ultimately, it is too early to know how the cost of living crisis will impact divorce rates, and even if it increases in 2022, this may be partially attributable to the introduction of the Divorce, Dissolution and Separation Act 2020, allowing no-fault divorce, in April.

How might those in the process of negotiating a financial settlement be affected?

As we wrote about in a recent article entitled, ‘Can I Change A Consent Order In Light Of The Cost Of Living Crisis?’ it is possible, in certain limited circumstances, to gain permission from the courts to vary an existing financial order, but what about those currently trying to negotiate a financial settlement? Will they be willing to commit to a financial arrangement which may not cater for their needs in the coming months as costs rise? Likewise, will financially better-off individuals be willing to increase payments to their ex-spouse if costs rise substantially?

Some within the legal profession think that the cost of living crisis will make it harder to reach an agreement on financial matters following divorce. This is largely driven by uncertainty in terms of mortgage interest rates, energy costs, property values, and the corrosive effect of inflation on savings. According to IFA Magazine, the cost of living crunch and general uncertainty about future mortgage rates are causing divorce negotiations to be “scuppered”, with some being concerned that any financial commitment may later become unaffordable. They also report that some couples going through the divorce process are finding it increasingly difficult to estimate their future costs. 

Where possible, we recommend that both parties try to take a fair and pragmatic view of their financial arrangements and try to pre-emptively factor in provision for the cost of living crunch. Concern over being ‘trapped’ in an agreement which is no longer viable for either party is entirely understandable, but given that the courts will only vary an order in exceptional circumstances, a flexible approach will be key. This will ensure the financially less well-off party is secure as their costs rise, at least on a temporary basis while the ‘storm’ passes. As part of this process, it is advisable to create a realistic budget for all of the costs to be covered in the financial agreement (e.g. electricity, gas, and mortgage) and factor in rises of the magnitude being forecast.

Final words

Whether the current cost of living crisis will lead to a substantial increase in divorces and dissolutions or whether couples will choose to maintain the status quo for financial reasons remains to be seen.

For those who have already made the decision to separate and are working through the process of reaching a financial agreement, it is advisable to engage a family law practitioner specialising in Alternative Dispute Resolution (ADR) methods. Using non-confrontational dispute resolution methods such as mediation can help divorcing couples reach an agreement in complex and dynamic situations, such as the current cost of living crunch. When it comes to weathering the cost of living crunch following divorce in 2022 and 2023, flexibility and pragmatism by both parties will be essential.

For a free consultation regarding any legal matter relating to divorce or financial orders, please call our understanding and caring family law team on 0208 300 6666.