5 financial aspects to consider when divorcing

Category: Financial Planning

From 6 April 2022, no-fault divorce came into effect in England and Wales. No-fault divorce is a long-awaited revolution in family law, finally removing the need for blame as a basis for divorce. The result is that the only ground for divorce is that the marriage has ‘irretrievably broken down’.

No one enters into a marriage expecting it to end in divorce. However, for many couples, divorce is the sad reality. If you are facing divorce, it is vital to know that you are not alone. Each year, thousands of people go through the divorce process.

While divorce can be a difficult and emotionally charged time, there are things you can do to make the process smoother. Minimising other worries is essential when you need to make crucial decisions.

Here are five points for anyone finding themselves in this situation to consider

1. Get professional advice

Seek legal and separate financial advice immediately. A financial adviser can help draw up a list of joint and personal assets and valuations, so any legal advice is based on accurate information. Having this information in place can make an appointment with your solicitor more time and cost-effective.

2. Cancel any financial commitments that might be in a joint name immediately.

A more unscrupulous partner could take advantage otherwise and saddle you with debt you are liable for. So cancel credit cards, joint accounts, personal loans and even overdrafts and set up new ones in your name.

3. Consider your timing

Although it may be the last thing on your mind, choosing the right time of year to divorce could significantly impact each individual’s financial outcome. When a marriage or registered civil partnership breaks down, taxes will probably not be at the top of the agenda.

Your tax position refers to the income tax and Capital Gains Tax you’ll need to pay. There is a window of time during the divorce process where a spousal exemption applies and then drops off.

4. Consider your pensions

When it comes to pensions, finding a way to achieve a clean break so you are not tethered to your partner forever is vital. What can be divided depends on where in the UK you are divorcing. In England, Wales and Northern Ireland, the total value of the pensions you have each built up is considered, excluding the basic State Pension. In Scotland, usually, anything built up before you married or after your ’date of separation’ does not count.

There are two main ways of dealing with pensions at divorce that apply across the UK. Pension sharing is often the favoured way of dividing a retirement fund because it achieves a ‘clean break’. Pension sharing involves couples splitting one or more pensions. The aim is to equalise the future incomes of both spouses. Your professional financial adviser will be able to help you implement any pension sharing order after the splitting process is complete. The second option, pension offsetting, sees pension rights balanced against other assets, such as the home. Suppose one spouse has a pension fund worth £500,000 and the couple jointly own a property worth £500,000. In that case, one may keep the property, and the other may keep the pension. Things are rarely that simple, so professional advice is critical.

5. Budget for the future

Life will be different once the divorce is complete, so it’s essential to budget for the future life you want to live. Financial advice can help here by showing what could be possible financially.

Obtaining a credit report is a good start, especially as many people need to think about a new mortgage after divorce.

Financial advice can help you with the myriad financial decisions involved with divorce. From valuing and splitting pensions, financial disclosure and income planning, valuing investments, managing tax, and implementing court decisions to get your finances back on a sound footing. If you want to find out how we can help you with any of these, please book a free no-obligation chat here.


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