Divorces can be incredibly complex, even when you take out the emotional aspects of separating from your partner.
And, unravelling a married couple’s finances during a divorce can be far more complicated than it first appears.
This is where financial planning can play a vital role. Having a financial planner involved from the beginning can make the process much smoother and potentially less stressful.
Despite the emotional and financial benefits of financial planning, a report by International Adviser revealed that only 3% of divorcing couples seek financial advice.
While many divorcees will speak to solicitors, legal professionals won’t always be able to offer advice on mortgages, pensions, protection, or investments.
So, keep reading to discover five practical ways financial planning can add real value if you’re separating from your partner.
1. Understand how best to divide your pensions
With so much to focus on during divorce, it can be very easy for you to overlook the division of your pension assets.
However, what happens to your pensions as part of a divorce settlement can be as important as deciding what to do with the family home.
Despite the importance of dividing pensions during divorce, a report by PensionsAge revealed that the number of Pension Sharing Orders – a court-approved way of dividing pension assets – fell by 35% between 2017 and 2021.
With pensions a vital part of any retirement strategy, fairly dividing up any pensions you both have will be one of the largest financial decisions you will need to make during divorce.
There are three ways you can usually split your pensions:
- Pension Sharing Orders – a formal agreement to divide pension assets
- Pension Offsetting Order – the current value of a pension will be offset against another asset, such as a property
- Pension Attachment Orders – where part or all of a pension is paid directly to a spouse when the benefits become payable.
Seeking advice from both a solicitor and a professional financial planner could offer value here. The solicitor will offer you comprehensive legal advice based on your circumstances.
Meanwhile, we can help you value your pensions, talk through your options, and advise you on an appropriate pension scheme to transfer any capital into should you elect to choose a Pension Sharing Order.
2. Know with confidence what will happen to the family home
Coming to an agreement on what will happen to the family home will likely be one of your key concerns, especially if you have children.
For example, you may want to stay in the family home after separating and need to know if you are financially able to do this.
Likewise, you may both decide to sell the property so that you can pay off the mortgage and split the proceeds.
Whatever happens, you’ll likely want to know that you have enough money to cover rent or mortgage payments and any other regular outgoings and whether you’ll be able to maintain your lifestyle.
We can use sophisticated cashflow planning software to model what your financial future looks like post-divorce, taking any income and assets into account. This can give you the confidence to negotiate a settlement you’re comfortable with.
3. Organise financial protection following divorce
During your relationship, you both may have organised financial protection, such as life insurance, income protection, or critical illness cover.
While in the past it may have made sense to put plans in place to support your partner should you have an accident or pass away, you may now want to amend your policies to reflect the change in your circumstances.
Additionally, if you had protection in place, you may also need advice on what to do with these policies as they can rarely be “split” between the two of you. We can help review your protection and give you advice on how to deal with any existing cover, and what safety net you may need now your circumstances have changed.
4. Devise a plan for your financial future
Understanding how the divorce will affect your finances in the future is likely to be one of your main concerns.
Without the additional income from your partner, you’ll need to know that you’re going to have enough money to maintain your lifestyle. Indeed, research by Legal & General revealed that women see a 33% decline in their income following divorce. This compares to a decline of just 18% for men.
Working with a financial planner can offer real value here. We can help you devise a new financial plan that accounts for your current circumstances and any newly amended financial goals.
This gives you clarity on how your wealth will look after the split, meaning you can move forward knowing what your financial future looks like.
5. Have comprehensive peace of mind by working with professionals
You’ll no doubt have plenty of questions about how to proceed and whether you will be able to afford everything you want to do once you’re separated.
Having an experienced financial planner in your corner can give you the peace of mind you need.
At Solus Financial Planning, we understand how divorce can affect you financially and emotionally. Our supportive team have wide experience of people in your situation, so to find out how we can help please email firstname.lastname@example.org or call us on 01245 984546.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.
Note that protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse. Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.
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