January is arguably the least-liked month of the year. From cold and dreary weather to tight finances after the festive season, there’s plenty to dampen good moods.
Aside from everything else, anecdotal evidence suggests that the first Monday of January (often called “Divorce Day”) sees family solicitors receive a noticeable uptick in couples seeking advice about separation and divorce.
Regardless of the circumstances, getting divorced is both emotionally tough and fraught with difficult decisions. As clients are often concerned about how divorce might affect their financial future, financial planning can play a valuable role alongside the legal process.
Here are three meaningful ways I can help your clients protect their financial position before, during, and after divorce.
1. Making informed decisions about pension division
Aside from property, pensions are often one of the largest marital assets. And yet, they’re often overlooked as people typically focus on the family home.
There are several ways to split pension savings:
- Pension Sharing Order – A formal agreement to split all pension assets at the time of divorce. You are free to keep your portion in the current scheme or transfer your savings elsewhere.
- Offsetting – Instead of splitting pension savings equally, the value of one person’s retirement pot is offset against other assets. For example, one partner might keep their full pension while the other keeps the family home or receives a larger share of cash savings.
- Earmarking – Though this option doesn’t require legal transfer of ownership, a portion of one person’s pension is earmarked for their ex-partner. When the pension owner starts drawing benefits from the pension, the other person also receives a portion of the benefits they’re entitled to.
How couples divide pensions during a divorce could make a significant difference to their retirement plan.
There’s no one-size-fits-all solution; the decision will depend on individual circumstances and immediate and future financial goals.
I can help your clients assess the true value of different pension arrangements and determine the most suitable way to divide their savings.
2. Navigating the division of assets while understanding the long-term consequences
Emotions can run high when dividing assets, causing clients to think with their hearts rather than their heads. For example, emotional attachment to the family home could drive them to fight to keep it, without fully understanding the financial implications.
With multiple routes to resolving property ownership and living arrangements, I can act as a useful sounding board, ensuring clients understand how decisions made now could affect their long-term financial future.
3. Ensuring clients leave the marriage with enough to live independently
In the midst of divorce, it can be hard to think beyond the details of separation. Yet it’s essential to consider the future.
If a client and their ex-partner’s finances have been entangled for many years, it can be hard to understand whether they have “enough” to live the lifestyle they want after the separation.
Through cashflow modelling, I can help clients visualise their finances both now and in the future.
I can create a lifelong cashflow model that looks at the lifestyle clients enjoyed during their marriage, and what resources they’ll need to maintain their lifestyle after divorce.
This can be particularly useful when working out whether monthly maintenance or support payments will be enough. Where settlements involve a lump-sum payment, cashflow modelling can provide a forecast looking at predicted spending alongside future interest rates and inflation.
Ideally, as cashflow models can help clients better understand what they need from the final settlement, these conversations should happen before the divorce.
Each of these financial planning steps can give clients confidence in their decisions and peace of mind that they’ll be financially stable and secure for the future.
Once the dust has settled, I’ll help clients look forward to a bright financial future
Financial planning is designed to be a lifelong process, and I’ll be on hand to support clients after divorce. I’ll check in regularly to ensure they are on track to reach their goals and adjust their plan as circumstances evolve.
From ensuring clients have appropriate protection in place to restructuring retirement plans and revisiting tax planning and estate plans, I can make sure clients have taken steps to secure their financial future, and that their loved ones will be looked after too.
Get in touch
If you’d like to learn more about how I could help your clients protect their financial interests before divorce, or plan for a new future following separation, email mail@delaunaywealth.com or call me on 0345 505 3500.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
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 performance.
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.
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation, and regulation, which are subject to change in the future.
The Financial Conduct Authority does not regulate cashflow planning, tax planning, or estate planning.
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