One of the most positive aspects of financial planning during divorce is that it gives you the chance to take charge of your own finances, and focus on the things that matter to you most.
The first working Monday of the New Year has long been known as "Divorce Day" among counsellors and solicitors. However, in many places in the UK, that day has extended throughout the entire month, turning January into "Divorce Month". If you are going through the difficult process of divorce (or if you want to protect yourself from a potential crisis in the future), a financial adviser can help you organise your assets and help you take control of your future.
The media frequently reports on the so-called 'January rush' to divorce courts, often referring to the first working day or Monday of the year as 'Divorce Day'. This is the time of year when, as couples spend time together over the Christmas and New Year period, family lawyers report a surge in divorce enquiries. Grant Stephens, of Grant Stephens Family Law in Cardiff, said in an interview with the BBC that "in terms of stress on a relationship, Christmas can be right up there with moving house or having a child. There's the pressure of being cooped up at home with your extended family, or at the other end of the spectrum, not seeing as much of them as you'd like because of work commitments." His firm assures that inquiries in January have spiked to about 150% of the November, December and February averages.
Relate, the largest provider of relationship support in England and Wales, reported to BBC Wales on 3rd January 2023 to have received 50 enquiries for help from couples, compared with about 8 or 9 a day in early December. The charity reports that many couples expected their relationships to worsen over the forthcoming months, with financial worries, mental health issues, and "the pressure to create the perfect Christmas" cited as reasons.
This year, however, the trend seems to go the other direction: research from Legal & General published by Nelsons Family Law shows that the cost of living crisis has caused 270,000 couples to delay their legal separation. Since the crisis has had a significant impact on the number of people divorcing - especially since 2020 - the expense of obtaining a divorce has led to many rethinking or delaying separation.
The research also found that 48% of divorcees experienced a reduction in income of just over 30%. This resulted in an average annual loss of £9,700 for them.
Despite the new delay in separation, many people are willing to engage the services of a solicitor to work through the legal aspects of their divorce. However, another interesting fact is that the vast majority seem less convinced about the need to talk to a professional financial adviser or wealth planner. Recent research published by Legal & General found that people aged 50 or over are four times more likely to seek divorce advice from a friend than they are from a financial adviser.
Unless your friend happens to be a financial adviser, speaking with a professional can assist in covering the essential steps to ensure your financial future. Here are some of the areas in which a financial adviser can offer assistance:
Divorces can be financially complex
For one thing, unravelling a married couple’s finances during a divorce can be far more complicated than it first appears. Not just in terms of getting all of the information together to help you and the other party to make a ‘clean break’, but also to make sure that can move on and begin life after divorce on the firmest financial footing possible.
Getting your finances in order takes time
One of the first steps will be to make a comprehensive list of everything you own. Once the divorce petition has been drafted, both parties (the divorce petitioner and the respondent) will need to complete Form E, which is available to download on the gov.uk website. Along with including details about the marriage, and the health and education status of any children in the family, you will also be required to provide comprehensive details of your financial affairs. Both parties are encouraged to volunteer their financial information freely, which will help to move negotiations along and increases the likelihood of reaching an amicable agreement and avoiding having to go to court.
At the same time, there could be consequences in court if you fail to make full disclosures on the Form E you submit as part of the divorce hearing. For example, you will need to include details of your mortgage and other property interests, as well as details of your bank accounts, as well as any pensions or other financial assets, investments or savings that you own. If you own a business, you will also be required to provide details of all your business interests as well as past profits and future projections.
Mistakes can have serious consequences
Non-disclosure can also sometimes happen by mistake, particularly in the area of pensions, so getting a financial planner involved at this point can make the whole process a lot easier. You can trust them to help gather all of the information you need about your finances and assets, including contacting pension providers to find out how much your pensions are worth, leaving you with more time to focus on other aspects of the divorce proceedings.
Getting the best available pension settlement
Pensions are not the first thing people think about when it comes to putting financial affairs in order during divorce proceedings, but it’s an area that you really cannot afford to dismiss lightly. While splitting pensions straight down the middle might seem the fairest and most straightforward course of action, this will not necessarily result in an equal level of income in retirement. It’s worth talking to a professional wealth manager or financial adviser before making any decision. For example, your adviser might recommend that you instead ask for an equal income share, rather than a simple 50/50 split of the pension capital, as this may leave you with a higher level of income during retirement. Alternatively, they could suggest that you ask for ‘pension offsetting’ instead. This is when the value of the pension is offset against other assets in the divorce, such as the marital home. Pension offsetting can prove particularly helpful solution if your partner has built up a substantial pension. Whatever your personal circumstances, working with a professional wealth manager or financial planner can help you understand the different options available to you, and recommend the most advantageous solution for you.
Working out what to do with the marital home
One of the most emotive and complicated aspects of any divorce is deciding what to do with the marital home. It’s quite common for people to feel often emotionally invested in their family home, especially where children are involved. As a result, many people elect to take over the mortgage on the family home during a divorce settlement in order to keep the family home and are willing to give up a proportion of their spouse’s pension in exchange.
In these circumstances, talking to a wealth manager or financial adviser who can be completely objective and unemotional about your family home could prove invaluable. They can help you with future cash flow projections and help to determine whether you will have the financial means to keep up mortgage repayments.
It may be that the most sensible course of action is to sell the marital home and ‘downsize’ to something more affordable, while at the same time agreeing to take a proportion of your former spouses’ pension. Whatever you choose to do, it can be reassuring to talk over your decision with someone who can offer professional guidance and will give you guidance based on your personal circumstances.
Professional wealth planning can improve your financial situation
A qualified financial professional will also help to stress the importance of signing a ‘clean break order’, a document that only an estimated one-third of people going through divorce end up signing. A clean break order is a legally binding agreement that severs all financial ties after a divorce and protects both parties from future claims over any assets. So, if you and your ex-partner both sign the clean break order – and you happen to win the Lottery the day after – your ex cannot get their hands on your winnings.
Seeking financial advice early on in the divorce process can prove beneficial in other ways too. A wealth manager, for example, can help you to make changes that allow you to make the most of your financial situation after divorce – particularly when it comes to taxes. For example, if any assets divided up during the divorce are liable to capital gains tax (CGT), your wealth manager should be able to organise an ‘inter spouse CGT exemption’ (assuming any transfer of assets is completed before the end of the tax year in which the separation occurred).
Helping you to move forward
One of the most positive aspects of financial planning during divorce is that it gives you the chance to take charge of your finances and focus on the things that matter to you most. If you’re ready for us to introduce you to a wealth manager who can assist you with reviewing all your assets, as well as helping you to establish your individual financial goals, why not get started today?
