Divorce is one of the most emotional experiences a person can go through and dealing with the financial implications of this can be one of the most daunting parts of it.
Most people use a solicitor to work through the legal aspects of their divorce but a Financial Planner can really help if your dissolution or financial situation is fairly complex. Needless to say, the financial decisions you make at this time will impact the rest of your life so its important to get the right type of advice at the outset. Handling things on your own can cause you to overlook things, but the appointment of an experienced Financial Planner means that you will be able to explore and be advised on all of the financial options available to you.
In this article, we present some of the key financial aspects of divorce that you need to think about and suggest some common mistakes to avoid.
Immediate Financial Aspects of Divorce to Consider
Naturally after a separation, the immediate financial concern is figuring out how to stay afloat. This is a very unpleasant time, as you go into survival mode. Can you afford to pay your bills, and will you be able to avoid falling into debt with some careful budgeting?
Your prime focus will be the need to provide financial stability for yourself and any dependents you are responsible for. Avoid making any drastic banking decisions such as switching to another provider, especially if you have not agreed this with your former partner.
Money is often tight after a separation, and it’s important that you do not fall into debt. Moreover, it’s crucial that you protect yourself as much as possible from the effects of your former partner falling into debt. As you will still be legally married at this point, this debt certainly will affect you.
If your spouse is the sole name on the mortgage for the family home, then you might want to consider registering a Notice or Restriction. You have a legal right to live there, and this helps in preventing your spouse from taking the unilateral decision to remortgage or sell the home.
Considering the Family Home
One of the trickiest aspects of any divorce is figuring out what to do with the marital home.
It might be in your children’s interests and in your interests, for one of the adults to remain living in the property. However, this might actually be a hindrance to you in terms of moving on with your life.
You also need to consider whether keeping the family home is the most sensible financial decision. Depending on your circumstances, it might make sense to stay put. In many cases, however, the more rational option is to move somewhere more affordable.
You will be faced with monumental, highly-emotional decisions. However, in our experience, we can help clients to bring a lot of clarity to this difficult situation. Indeed, many clients have contacted FAS after their marriage dissolution, thanking us for raising the question about the family home and for the guidance we have been able to provide and in helping them towards making a decision they might not have had the strength to carry out alone.
Other Important Areas of Divorce Planning
You are most likely to have marital assets other than your home which you will need to plan accordingly after a separation.
This is a key time for you to review your assets thoroughly with the help of an experienced Financial Planner. At FAS, we can help you establish what your assets actually are, where they are located and whether these are still appropriate for you, given your dramatic change in circumstances.
For instance, some common questions our Financial Planners present to clients include:
- Has your attitude to investment risk changed since change in circumstances?
- Is it now appropriate or sensible to keep your Buy-to-Let property?
- Do you need assistance with any existing pension arrangements or Pension Sharing Orders?
Pensions may or may not need to be divided following your Divorce. It depends on your particular situation. In light of this, working with a suitably qualified Financial Planner can help you look at how this affects your own retirement planning.
Financial Mistakes to Avoid During Divorce
Focusing on the home and neglecting other areas.
Many people become highly attached to the family home during Divorce, especially where children are involved.
This can often lead to many taking over the mortgage borrowing during a divorce settlement in order to keep the family home but at the expense of losing a proportion of their spouse’s pension. In most cases, it is better to sell the marital home, buy something smaller, and take a slice of the former partner’s pension. Of course, this isn’t the right choice for everyone, which is why seeking the right guidance is essential.
Accepting an equal pension split
Whilst equally splitting your partner’s pension provision might seem the fairest course of action, you should carefully consider this option before agreeing to it. This will not necessarily result in an equal level of income in retirement. Quite often, it is better to push for an equal income share, rather than a simple 50:50 split of the capital so discussing options with a Financial Planner makes sense.
Failing to check valuations
This is where our Financial Planners often provide the most value during a client’s Divorce. Both spouses are legally required to disclose all their assets during Divorce, including businesses and pensions. However, these two areas are quite complex and it is possible to conceal actual values. A Financial Planner who is experienced in this field will be able to help you obtain the relevant documents you need in order to value these assets, ensuring you get a fairer deal in the final settlement.