Dealing with financial decisions can be one of the most challenging elements of the divorce process. Amidst the emotional turmoil, thoughts inevitably turn to finances and how to protect your financial security at what is a difficult time.
Most people facing divorce understand that decisions taken can have lifelong implications, and will therefore look to use a solicitor to help negotiate the legal aspects of the divorce process. Alongside specialist legal advice, seeking independent financial advice during the divorce process can provide valuable assistance in negotiating the numerous decisions that need to be made. To make best use of a financial planner, those going through divorce would be well advised to seek advice throughout the process, rather than just at the final stages, when decisions have largely been reached.
There are a number of key areas where seeking financial planning advice can help throughout all stages of the divorce process, from considering the financial implications at the point of separation, to making the right decisions with a divorce settlement.
Gathering information on assets
Parties to a divorce need to provide full disclosure of assets and a financial adviser can assist in obtaining valuations of marital assets, from savings and investments to pensions. Investment products can often be complex and understanding the true value of an asset can sometimes prove challenging. Obtaining an accurate valuation of all assets is crucial in establishing the starting point for financial negotiations.
Pensions are a particular area where financial planning advice can make a real difference. Many people going through divorce are surprised to learn the impact the value of pensions can have on a divorce settlement. Anyone with long standing service in the public sector may well have accrued significant pension benefits. Similarly, high earners or self-employed individuals may well have made substantial pension contributions over time, which can build into a sizeable pension value.
Preparing a budget
One of the first considerations at the early stages of divorce is how to meet any immediate financial obligations and this is an area where independent financial advice can assist, in assessing income, expenditure and affordability. Likewise, a financial planner can help determine the level of capital required from a divorce settlement to maintain a desired lifestyle, which can help navigate decisions that need to be reached in respect of existing marital assets and each spouse’s income streams. This can prove very helpful when negotiations between spouses, or the mediation process, is taking place.
Decisions reached to sell or transfer assets during or after the divorce process has completed, can carry tax consequences. The transfer of assets between spouses is normally exempt from Capital Gains Tax; however, this may not be the case after the relationship has legally ended. Likewise, the disposal of investments could potentially have tax consequences if they are sold as part of a financial settlement.
Understanding retirement planning options
Pension assets accrued through an individual’s lifetime are taken into account when assessing the value of pension assets. As each divorce settlement is different, the treatment of existing pension arrangements will differ from case to case.
Where significant pension assets are held, it may well be necessary to obtain an actuary report, which is often prepared to assess the pensions held by both spouses. These reports can be long and difficult to understand. We can review the report and use the findings to help individuals make appropriate plans for existing pension arrangements they may receive as part of a pension sharing order, or assist those whose pensions are to be split to make the right decision on which pensions are divided or transferred.
Once an order has been implemented, we can help provide advice on how an individual can make best use of their remaining pension savings, and the likely income that could be generated in retirement.
Assessing protection needs
One area that is often overlooked are ongoing insurance and protection needs. Many couples will have joint life insurance policies which provide cover over existing debts, or to provide funds for family in the event of death. It is important to review such policies to make sure that they provide adequate cover for your future needs. Many people rely on Death in Service provision offered by their employer, and again it is important to review the beneficiary on these policies once a marriage has come to an end. Finally, spouses often benefit from cover on family health insurance that could be provided through their employer. Again, it Is important to review options to provide ongoing cover.
Create a new financial plan post divorce
By working with a financial planner through the divorce process, you can begin to establish a relationship whereby the planner can really get to understand your circumstances, needs and objectives post divorce.
One key area where advice is often crucial is in respect of retirement planning. For many individuals going through divorce, established plans for retirement savings may need a major overhaul. We can ensure that pensions are invested appropriately and plans drawn up to establish an affordable pattern of contributions to rebuild pension pots.
We often see clients who receive a lump sum capital payment as part of the divorce process. We can provide advice on the most appropriate investment strategy, either to provide a tax efficient income stream or aim for capital growth over the longer term.
At FAS, we provide truly independent and holistic advice, taking into account all aspects of our clients’ financial circumstances. Our advisers are experienced in assisting those going through divorce, and are very used to working collaboratively with other professionals, such as Solicitors. Speak to one of our advisers to start a conversation.