The insurance that protects you against divorce

The divorce rate is at its lowest since 1974, yet policies offering cover against divorce have appeared in the UK.

Reality TV star Kim Kardashian announced last week she was getting divorced, after a marriage lasting all of 72 days. She's not alone in seeking a divorce, as around one in three marriages end in breakdown (though most don't hit the skids quite as quickly as Kardashian's).

At present if you have access to funds of less than £8,000 you’re eligible for Legal Aid. With cuts to the Legal Aid budget due next April however, you’ll soon be on your own when it comes to paying for a divorce.

The cost of divorce

And divorce doesn’t come cheap – although there are ways to reduce the cost. If there are no children and no disputes it might well be a simple form filling exercise, but if there are arguments over childcare or property, the final bill can run to thousands.

Many believe the recession and stretched household finances have contributed to the decline in the divorce rate. Accountants Grant Thornton have just published a survey revealing that 82% of people have put off divorce proceedings because of the economic climate.

American style divorce cover is here

Ahead of next year’s cuts the government has started to encourage people to think about divorce insurance, with Jonathan Djanogly, the Under-Secretary of State for Justice confirming it is something the government wants to see.

Divorce insurance has been around in the US for five years, and the first to attempt to make the move across the pond is American outfit Divorce Cover Limited. A lot of the information on its website applies to the American market. It’s not entirely clear how serious they are about encouraging UK customers.

If you’re not too unnerved by the firm's offer of a free Divorce Probability Calculator, you can use it to work out how likely it is that your marriage will hit the skids. You then purchase an appropriate level of cover. Protection is sold in units which are equivalent to an initial £780 worth of cover at £10 a month. According to the company website the amount covered will increase over time.

There’s a “waiting period” of four years in which no claim can be made. This prevents couples already thinking about divorce from taking out the policy. If you do end up divorcing within the four-year period the payments can be refunded if a premium is paid.

Pre-nups

An alternative to insurance is a pre-nuptial agreement. Strictly speaking they’re not legally binding in England and Wales (they are in Scotland).  But following a landmark divorce ruling last year involving £100m heiresss Katrin Radmacher, that’s set to change. Radmacher’s pre-nuptial agreement was enforced by judges who said that in the right case a pre-nuptial agreement could have “decisive weight”.

Pre-nups with insurance

The most recent divorce insurance to reach the UK market is offered by ARAG in conjunction with London lawyers Prolegal. It’s not an alternative to a pre-nup. In fact it’s offered alongside pre-nuptial advice. The policy covers:

• Mediation
• Issuing or responding to a petition
• Divorce proceedings to final decree
• Ancillary relief and challenge to your nuptial agreement

Crucially it’s only available to people who are entering into a pre-nuptial agreement. It is designed to deal with the situation where a pre-nup begins to unravel when a divorce gets underway. The policy can be arranged as an annually renewable contract or as a three-year contract with premiums payable by annual instalment.

Fairness

Like any contract, a pre-nup stands more chance of being recognised by the courts if it appears fair. This means it must be freely entered into and legal advice should have been given to both sides. It should clearly set out how assets are to be divided in the event of a divorce.

At the time of the Radmacher case, an explosion in pre-nups was forecast. 

Sign of the times

Grant Thornton’s survey reported that 58% of lawyers had seen an increase in pre-nuptial work in the past year. Along with the availability of divorce insurance, that figure is only likely to increase.

What do you think? Are pre-nups and insurance a sad sign of the times or just common sense? Would you take out divorce insurance or enter a pre-nuptial agreement? Let us know in the comments box below.

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