Securing your finances post-divorce

When it comes to divorce, you don’t just need your friends. You need a new roadmap, investment advice and pension splitting guidance.

If you ever find yourself hitting rock bottom, our job is to make sure that “rock bottom” becomes the solid foundation on which you can rebuild your life.

Our lives are made up of different chapters

Life has its up and downs. Graduating from university, landing the job of your dreams, falling in love for the first time, getting your first house, setting up a business, and watching it flourish… those are the ups that make life worth living and we relish opportunities to celebrate and share them with friends and family.

As for the downs, hopefully, there are people in your entourage to share those with too. With any luck, by the time life starts throwing mishaps and misadventures in your direction, you will have people to sit down and ponder bereavement with, or life-long confidants who can pass you the tissues as you share the details of a crushing professional disappointment or a marital breakup. Where would we be without the emotional support of those closest to us?

But when it comes to divorce, you don’t just need your friends. You need sound financial advice to ensure that you do the right thing and build a solid foundation for your future stability at this watershed moment of your life – a time when emotions are running high and informed decisions need to be made with a clear head.

Think about it. The roadmap you and your spouse had both been on for years and years was tailored to your timeframes, your revenue, your goals and your aspirations, and pretty much everything else…. all as part of a couple.

You’re going to need a new roadmap

Suddenly, all of that has to change. So we have to sit down with you and review every aspect of your new financial life. We may not be divorce lawyers at Investment Quorum, but we do know that even a newly divorced client is much more likely to get back on his or her feet quickly and achieve financial freedom if they have a good financial roadmap. And like so many things, cash flow modelling is a key factor in making that possible.

A cash flow model is essentially a snapshot of your assets – a snapshot that includes absolutely everything: your investments, your debts, your income, and expenditure… the whole lot. We take all this information and together we take a trip into the future, factoring in things like calculated rates of growth, how you think your income will increase over time, what we think inflation is going to do, interest rates… and as much of the “unexpected” as we can.

Part of the divorce settlement will most likely involve you getting some form of a lump sum. We will use cash flow modelling to determine how much of that should be kept in cash, how much should be kept aside for emergency short-term expenditure and how much should be invested.

You will need our help in splitting your jointly held investments – we will need to reinvest them based on your new objectives and your new attitude to risk. You may, for example, be more cautious. And it is highly likely that you will have a lower capacity for loss. Needless to say, we can manage any tax implications for you and help you take advantage of your spousal exemption for as long as that is still possible.

Taking care of post-divorce admin

There will be other post-divorce admin to take care of. Any insurance policies that you have in place, for example, will need to be reviewed to determine whether or not they are still appropriate. You will probably want somebody other than your ex-spouse to be the beneficiary of your various policies, so we may need to effect new ones that are cost-effective and provide the right cover.

The same applies to trusts – new trustees will need to be appointed and beneficiaries changed. And lasting powers of attorney may need to be updated, along with executors, for your will.

Most of these amendments and modifications are straightforward. Other changes are more complex and have wider-ranging implications. Financial advice should definitely be sought with more complex matters, however, such as when transferring offshore bonds: depending on how they are transferred, there may be a potential income tax charge. Our job is to undertake a comprehensive review and financial health check with you, and double-check so that nothing falls by the wayside.

Don’t forget your pensions

Pensions are frequently overlooked by divorcing couples. Pensions are usually one of the biggest – if not the biggest – asset, after the family home. You’ve contributed to your marriage in a multitude of ways. Why shouldn’t you claim a share of your partner’s pension, as well as splitting the value of your property?

More often than, people are more focussed on the latter and fail to value pensions as a way of securing their long-term future. But pension funds can also be split as part of a divorce settlement.

It’s important to remember that having a smaller pension than your partner does not necessarily mean you will get less if you divorce.

When it comes to splitting pensions, every case is different and there’s no standard way to divide up pension assets.

Contrary to what you might think, a fifty-fifty split is not guaranteed to generate equal pension income on retirement. The higher earner usually comes away with a bigger pot than the primary caregiver in a marriage. But the respective ages and life expectancies of the parties, alongside the commercial reality of what the pension credit will buy the pension recipient in terms of income are all additional factors in a complex equation.

This is for all the reasons one might imagine: a parent who has taken prolonged periods of paternity or maternity leave will have more “gaps” in their career. But if there is significant inequality between the two pensions, the courts may try to address any disparities when dividing up the pots as part of the settlement.

Different ways to divide up pension assets

There are several ways to ensure that the way in which pension rights are distributed produces a fair result. These include pension offsetting (setting the value of the pension resources against the value of other assets held between you and your spouse), pension sharing (simply splitting and dividing an existing pension arrangement between the parties following the divorce), and pension attachment orders (a percentage of the pension income is paid to one party when a pension becomes payable to the other party).

When it comes to pensions and divorce, numerous outcomes need to be considered. So it’s always advisable to consult a specialist family solicitor at the earliest opportunity and ensure the best resolution for both you and your soon-to-be-former spouse.

Talk to us sooner rather than later

Our lives are made up of different chapters, and each one brings with it new questions and new challenges. Some of life’s major events create more upheaval than others. If divorce knocks on your door, we can provide help and assistance in areas in which solicitors may lack expertise, and vice-versa. The advantage of having us working together for a common client outcome in this complex area cannot be underestimated.

Author Picture
Melissa Thorogood
Wealth Manager
Melissa Thorogood is a Wealth Manager and Chartered Financial Planner at Investment Quorum. Melissa provides financial advice on investments, pensions, wealth protection, legacy planning and tax services.
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