Against a backdrop of emotional turmoil, decision-making during a divorce is never easy, with a myriad of big questions to resolve: Where do I want to live? Will I be able to make the maintenance payments? Do I get to keep my house? What about access to the children? I know about this from my own first-hand experience some five years ago, with the first year characterised by a multitude of life-changing decisions, as well as the reality of dealing with all the legal work.
It’s not just splitting, but protecting your assets
Most people are familiar with the concept of enlisting legal support to help negotiate the divorce process. This legal process begins with the filing of a petition for divorce followed by information-gathering, negotiation, and settlement. The negotiation stage may also involve mediation or other informal settlement processes to avoid a trial. If these out-of-court measures fail, then a Financial Dispute Resolution (FDR) can be a final chance to settle out of court. In an FDR, both sides present their cases to a judge, who determines how the court might rule if the divorce case goes to trial.
Alongside the family solicitor, however, involving a financial adviser as well from the outset will help ensure that everyone’s assets are also protected as much as possible – by identifying the most suitable tax-efficient solutions, ensuring that all matrimonial assets are in the picture and helping to achieve a better financial settlement for clients, based on fair valuations. In addition, many divorcing clients would derive huge benefit from a cashflow plan – looking at not only what they need now, but also what they will need in their individual futures. As with any other major life change, a financial adviser can ensure a holistic approach to your changed finances and life goals.
Retirement planning and divorce
Decisions on splitting joint assets are often very difficult and the division of pension assets is both an art and a science. Where the valuation of defined contribution plans is relatively straightforward, final salary benefits often lead to a range of valuation outcomes. This friction is best managed if the financial adviser recommends the optimal approach, be that a pension sharing order, attachment order or lump sum offset to meet the needs of the client.
As a negotiating move, the partner with the majority of the pension assets may want to hand some over to maintain ownership of other prized assets. For the partner with fewer pension assets, a sharing order is often the only option to build up any significant retirement savings. Pensions are closely linked to employment and if someone has been out of the workforce for long, their earning power is likely to be lower in a relative sense.
Advice after divorce
Ongoing financial advice is also important post-divorce, to ensure you are making the most of your money and it is invested as tax-efficiently as possible. It’s also vital to review your protection arrangements, so that you and any children are not left exposed, as well as reviewing who will receive your pension or other benefits in the event of your death.
Dealing effectively with the trials and tribulations of divorce is not easy but anticipating what lies ahead and planning effectively makes a huge difference. Equally, understanding what each adviser brings to the table is important – and where a family lawyer is focused on achieving a fair split in the settlement, the financial adviser will focus holistically on the client’s ongoing financial needs and wellbeing. Without financial advice, the complex process of divorce can leave people financially vulnerable for many years, and could also leave your family unprotected, so adopting a collaborative approach helps ensure both parties have the best start possible in their new lives.
If you’d like any further advice around financial planning for a divorce, please do get in touch.