In April there were some key changes to The Divorce, Dissolution and Separation Act with aims to reduce conflict amongst divorcing couples and allowing couples to end a marriage jointly. This has led to an increase in the number of people enquiring about how divorce and separation impact on financial planning.
Back to NEWSFinances are intrinsically linked with the people we share our lives with. So where do you even start when you have thoughts of ending a partnership, separating or going through a divorce? We look at seven things to consider about your finances when planning a separation:
– How to take stock of your current financial situation
– Build a team of specialists, all working together, for you
– Don’t forget pensions
– Don’t get lumped with a huge tax bill
– Don’t get too attached to the family home
– Do change your will
– Devise a post-break up plan
On deciding to support yourself, you need a clear understanding of your personal finances to start building financial independence. Start plotting out:
You can’t do everything on your own. There will be some things you don’t know anything about. A breakup or divorce is like having several journeys at the same time. There is the emotional, financial and legal journey and the latter two can tend to derail the emotional journey. Getting in touch with a reputable family lawyer and a financial adviser who has worked with clients in a similar position, right at the beginning of the journey, ensures that all your decisions are right from a legal and financial perspective. It also means you have a team who can rally behind you and try to make the experience a lot more bearable. You should also consider getting in touch with a divorce coach to help you move through your emotions, overcome challenges and rediscover yourself. This team will help you create the future you want for yourself.
It is surprising how many people miss out pensions in a divorce settlement. There are two main reasons for this. It isn’t compulsory to split a pension so some settlements leave this out and it is hard to quantify a value of a pension. For a fair settlement, pensions should be taken in to consideration, especially for people who taken periods of time off work to raise or care for family and could be at a financial disadvantage later in life. A financial planner can advise you on pension sharing, offsetting or earmarking and which option is best for your personal situation. You can read up on the pensions gap between men and women and how this could impact on your family.
After a divorce is finalised you are likely to be taxed on the marital assets you receive. There is a lot a financial adviser can do to ensure you only pay the tax you should and there are ways you can structure a settlement as part of wider tax planning. Things like property division can have a huge impact on your finances. It is good to get this checked out in advance before agreeing anything.
Hanging on to the marital home is a common objective, often people don’t want the upheaval of moving. This can impair good decision making, perhaps keeping a house in exchange for entitlement to a spouse’s pension. The reality is, after making those sacrifices, it is common for people to sell their home after a divorce so they can have a fresh start.
People assume a divorce nullifies a will. This isn’t the case, it is a legally binding document so if you do not change your Will your spouse will remain a beneficiary. This is also the case with beneficiaries on life assurance or expression of wishes for pensions. These things will all need to be changed.
Your divorce or break-up isn’t going to be easy. Financial planning and coaching, along with wellbeing support, can help you transition into your new lifestyle by prioritising your financial goals and producing a plan that oozes financial independence, helping you reach the new goals you set for yourself in life.
Will writing and legal services are not part of the Quilter Financial Planning offering and are offered in our own right.
Will writing and legal services are not regulated by the Financial Conduct Authority.
Article Date: 21/04/2022
Author: Simon Jones, Bristol Financial Planner
Editor: Cherie-Anne Baxter, Director and part-owner of Unividual
