Why financial advice is key when managing a divorce

By HarperLees

Making the decision to end a marriage can often be a life-changing one for both partners.

In what is an emotionally challenging time, it can often be easy for people to overlook the financial implications of divorce.

While most UK adults will speak to a legal expert, solicitors won’t always be able to answer important and practical questions about sharing assets, mortgage affordability, or how to split pensions.

Seeking professional financial advice can add value here, helping you make informed decisions if you’re separating from your partner. Despite the financial benefits of doing so, according to Legal & General, only 3% of people seek financial advice when going through the divorce process.

So, if you’re seeking a divorce, or are considering doing so, working with a financial planner can help you understand the financial implications of your choices. Keep reading to find out why financial advice is key if you’re going through a divorce.

A financial planner can help you decide what to do with the family home

When you’re separating from your partner, one of the most important questions you will want answered will be: “what happens to the house?” This is even more important if there are children involved.

For instance, you’ll want to know whether one of you will be taking over the mortgage and continuing to live in the property or whether you intend to sell the property, repay the mortgage, and split any proceeds.

Of course, taking over the mortgage will entirely depend on your financial circumstances.

This is where working with a financial planner can add value. They can take an objective look at your financial situation to determine whether either of you can afford to buy out the other, while keeping up with the monthly mortgage payments.

If you are unable to afford to take over the mortgage on your own earnings, a financial planner could provide practical advice on other options available to you.

You will be better placed to split pension assets in a fair way

When you’re going through the process of divorce, there is a lot that you’ll have to focus on. Aside from deciding what to do with the family home, you’ll also need to consider a fair division of other assets.

During divorce, many couples overlook pensions and the impact they can have on future finances.  However, these can often be as valuable as the family home, so it’s crucial to split these in a fair and equitable way.

Despite the importance of dividing pensions during divorce, a report by PensionsAge revealed that the number of pension sharing orders fell from 36,202 in 2017 to 23,622 in 2021, a drop of 35%.

When separating from your partner, there are three primary pension options available to you:

  • Pension Sharing Orders – a formal agreement to evenly divide pension assets immediately
  • Pension Attachment Orders – where part or all of a pension is paid directly to a spouse when the benefits become payable
  • Pension Offsetting Order – the current value of a pension will be offset against another asset, such as a property.

A common approach is for one party to take the property while the other takes the pensions. However, this isn’t always the most suitable option. Even if the property and pensions are of roughly equivalent value, the person with the property may then have insufficient later-life income.

This is where working with a financial planner can help. They will assess the true value of all pension and other assets and help you decide on an equitable division of wealth.

Additionally, a financial planner can help you to set up a pension scheme to receive any share you’re due as part of a Pension Sharing Order.

You could effectively reorganise your financial protection

With everything involved in divorce, it can be easy to forget about any protection policies that you set up during your relationship.

However, paying close attention to your life insurance, critical illness, or income protection policies is an important part of organising your post-split finances.

For example, you may have taken out an individual life insurance policy and originally named your ex-spouse as the beneficiary. After separating, you may prefer the payout to go to your new partner, your children, or your relatives.

Alternatively, you may have taken out a joint protection policy. As a result, you would have to choose between cancelling it altogether to organise another or one of you taking on the arrangement as a single policy.

If you are the one to take over the policy, you’ll need to be aware of the fact you will be responsible for paying the premiums.

Similarly, if your ex-spouse takes over the life insurance policy, you’ll need to organise new protection and make new arrangements to reflect your new circumstances.

Working with a financial planner could be incredibly beneficial here. They could help you to understand where there are gaps in your protection, and give you advice about exactly what safety net you need.

Ensure you have enough to live independently

While arranging your divorce, deciding on how to divide assets and what happens to the family home may well be your priority.

However, devising a new financial plan that accounts for your current financial circumstances and your new financial goals is also a crucial part of the process.

For instance, when you’re separating from your ex-spouse, you will want to know that your money will still be able to provide you with the lifestyle you want. Some of your key questions may concern whether you have sufficient income and assets to maintain your standard of living after the divorce.

Working with a financial planner will help you identify what your financial goals are, whether you are still on track to meet them, and what steps you can take now.

Get in touch

If you’re going through a divorce, speaking with an experienced financial planner could make a huge difference to both your financial and emotional wellbeing.

We can help you to gain some clarity on what your finances will look like post-divorce, giving you confidence to negotiate an outcome that works for you.

Please email info@harperlees.co.uk or call 01277 350560.

Please note

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.

The Financial Conduct Authority does not regulate cashflow planning.

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.