4 powerful ways financial advice could help ensure a brighter future after a divorce

While the Christmas festivities can be a time of joy for many families, sadly it isn’t for everyone. The pressures that come with the celebrations can result in disagreements between spouses and civil partners, which is why January has unofficially became synonymous with divorce.

According to government figures, the number of divorce petitions between January and March 2022 was 30% higher than the amount made during the same period in 2021.

In April 2022, there was one of the biggest shake ups of divorce law in 50 years, which made it possible to divorce without attributing blame. Instead, spouses and civil partners can use a statement of “irretrievable breakdown”, which in itself provides conclusive evidence that the marriage cannot be saved.

While couples will typically seek legal advice when divorcing, many do not speak to a financial planner about their finances, which can mean that settlements are not always as fair as they should be. Furthermore, it might put one ex-spouse’s long-term financial security at risk.

If you’re divorcing or considering doing so, you may have already discussed your financial options with us. If you haven’t or know someone who is ending their marriage or civil partnership, read on to discover why talking to HarperLees Financial Planning could be a very shrewd financial strategy.

Additionally, visit the divorce section of our website for more information, and to hear from Diane, who kindly shared her experience of working with HarperLees.

1. Help you secure a fair settlement

One of the most important financial aspects of divorce is to ensure that marital assets are split in a fair and equitable way. This can help both parties get back onto their feet financially as quickly as possible, and ensure their long-term security.

While assets such as savings and property are typically divided up, other assets such as investments and pensions could be overlooked. According to interactive investor, research shows that while 60% of people view the family home as an important asset, only 23% see pensions as one as well.

Ironically, the pensions may be the most valuable asset a household has. Working with HarperLees Financial Planning means we will assess all of your and your former spouse’s investments and pensions, as well as all the other marital assets, to ensure that you and your legal professional understand their true value.

This will help to ensure that you receive a fair settlement and means you’re more likely to be financially secure further down the line.

2. Assess the value of the household’s pensions

A study by Legal & General found that nearly a quarter (24%) of people waive their rights to their ex-spouse’s retirement fund. Additionally, 69% could be liable to a future claim from their ex-spouse.

This means that working with HarperLees Financial Planning to ensure retirement funds are split fairly is in both party’s interests. That said, the process of valuing pension pots isn’t always straightforward, and may involve having to find lost or dormant retirement funds.

As a practice with extensive experience in dealing with pensions, we can assess the value of both party’s pensions so that you and your legal team can ensure they are split fairly. This could be particularly important if you’re one of the 39% of women, or 23% of men, who PensionsAge revealed expect to live off their spouse or partner’s retirement fund later in life.

3. Explain your pension options

Once the value of your and your ex-spouse’s pensions are established, we can help you understand how best to share them, which could help ensure that you are financially secure in retirement. Typically there are four ways to share a pension pot on divorce.

A Pension Sharing Order (PSO)

This is where a court decides how the pension should be split. Any amount you receive is then treated as your money, so for example, you could transfer it if that’s the best option for you.

A Pension Attachment Order (formerly known as “pension earmarking”)

This redirects part or all of a pension to the ex-spouse when that pension is due for payment. This means that typically you don’t receive anything until the pension holder starts to take an income.

An attachment order may also include funds from the tax-free lump sum. Previous earmarking orders issued in England still apply.

Pension offsetting

With this, the value of any pensions is offset against other assets of a similar value. For example, your ex-spouse or civil partner may keep all of their pension, and in return you keep the marital home.

If this is something you are considering, we can help you understand if this is the best option, as doing so may have implications for you. For example, if you were awarded the home, your financial security may be put at risk if you later struggle to run and maintain it.

Deferred lump sum

This is where both parties agree to share the pension at a later date, which can be a more complicated option to arrange.

4. Create a financial strategy

Creating a financial strategy could help you get back onto your feet financially sooner rather than later, and ensure that you can enjoy the retirement lifestyle you want. One reason for this is that it’s likely that your finances, investments and pensions will need reassessing as your financial goals are likely to have changed after a divorce.

Considerations that we can help you with could include:

• Creating an adequate emergency fund to ensure that you can deal with unexpected financial events
• Developing a budget to ensure you can meet your financial commitments
• Switching your pension and/or boosting pension contributions if necessary
• Whether investing a lump sum you received in your settlement is something you should consider.

Get in touch

If you, a friend or family member are divorcing and would like to discuss how to build financial security both now and down the line, we would be happy to have a conversation. Please email us on info@harperlees.co.uk or call 01277 350560.

Please note

This blog is for general information only and does not constitute advice. It should not be seen as a substitute for financial advice as everyone’s situation will be different.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change. The information is aimed at retail clients only.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.