Divorce and financial planning: how advice can help

When you’re dealing with the emotional impact that divorce brings, it can be easy to neglect the financial implications.

This can have knock-on effects in the longer term, so it’s important to consider the benefits of financial advice if you have had to make the difficult decision to split from a long-term partner.

How can a financial adviser help when you are getting divorced?

Most divorcees will confirm that getting divorced is a costly process. Solicitors' fees are likely to be high, even if a financial settlement has been negotiated and agreed. If agreement has not been reached and the case goes to court, you could likely expect these fees to increase substantially; particularly if children are involved.

A divorce can materially impact upon all aspects of your life and continue to affect your plans for the foreseeable future.

Whilst many divorcees may have used a mediator to help them reach a divorce settlement, adding the expertise of a financial planner will undoubtedly aid those negotiations and can help avoid a costly court case.

Financial planning for divorce

Consulting a financial adviser with a full list of assets and needs, as well as projected budgets for the future, particularly additional costs that may involve children or dependants, can help immensely in putting a financial agreement in place; when courts are establishing spousal maintenance, for example, inflation is often overlooked.

An adviser can help by valuing and splitting assets, taking into consideration of issues such as the cost of moving, purchasing new homes, and by looking at protecting the assets that you will acquire or assets that you will retain.

It may also be necessary to seek financial help in implementing your divorce agreement as it can involve many complex processes, particularly with pensions and investments. All these processes must be perfectly timed to avoid the possibility that either party loses out. Some assets may need to be sold and some others earmarked and this must be done as tax-efficiently as possible. Although your financial adviser may be working solely for you, they are able to take into consideration your ex-spouse’s circumstances also to ensure neither of you is being penalised in any way.

Cash flow modelling can be utilised at this stage to factor different variables into the equation, providing an accurate and detailed analysis of the current situation and what is needed going forward.

A divorce can adversely affect your retirement plans, as in some cases a Pension Sharing Order may be awarded or, perhaps, an Offset Agreement. At this upsetting time, a financial adviser can take a snapshot of where you are, look at what you have potentially lost, and help you build a plan for the future to get your finances back on track.

During a divorce, protection planning is often overlooked, for example, your spouse may have company benefits such as group life assurance, income protection or private medical insurance which you would have previously benefited from.

Pensions and divorce

Great care must be taken when splitting pension assets to ensure that you do not breach the annual or lifetime allowances. Orders relating to pension sharing must take place before a divorcing couple can apply for a Decree Nisi.

A decree nisi is a document that says that the court does not see any reason why you cannot divorce. If there have been no objections then a Decree Absolute can be issued, and the divorce is finalised just six weeks after the court grants a Decree Nisi. This is why it is absolutely essential that full advice has been sought prior to the Decree Nisi being granted.

Financial education

It may be that both parties are very financially astute. However, in my personal experience, I have found that generally one partner, generally the breadwinner, tends to have more knowledge than the other when it comes to a family’s finances. This may be because of interest or knowledge, or simply that this has been agreed over time as a role within the family unit. After the divorce, the less experienced spouse might not understand how or what they should be doing financially.

This is where you can start to build a good relationship with a financial adviser who can provide financial support and education that will help you now and in the longer-term, by guiding you through your various life stages. If you have received a settlement, for example, it is recommended that advice is sought to ensure your long-term goals, income needs and any foreseen capital expenditure is taken into consideration.

Potentially, without financial advice, the complex process of an already devastating divorce may leave you vulnerable for many years and both you and your family unprotected.

Financial planning after divorce

Your adviser can continue to help and support you in the future. It is likely, for example, that your living costs increase substantially after the divorce as you move from having joint finances to running two separate dwellings.

Again, cash flow modelling can assist greatly in assessing current and future needs as well as budgeting and prioritising resources. It is always important to consider inflation, as this can have a material effect on finances going forward.

In conclusion, by working with a financial adviser at this juncture in your life, we can help to give you the confidence to move forward with your new beginning. Needless to be said, there is no doubt that at any stage of your life, whether you are getting divorced, single or whether you are happily married, an experienced financial adviser can add value to your circumstances.

Making a fresh start

Read Nicola's story to find out how she helped her clients, Sharon & Patrick during their divorce, handling their assets separately but considering the needs of the family and prioritising their children’s well-being.