One of the first decisions when deciding to separate is whether or not you can come to an agreement on the split of assets between yourselves or whether to enlist further help.
If you are close to reaching an agreement, but with a few sticking points, you could attend mediation, where an independent third party helps find a solution you are both happy with.
The last option is to instruct a Divorce Solicitor to act on your behalf and help advise you on your legal entitlements and can identify any anomalies that may indicate that your ex-partner is hiding assets from you.
If you do reach an agreement between yourselves, or with the help of a mediator or Divorce Solicitor, it’s always best to make it legally binding. You do this by making an application to the Court for a Consent Order.
The benefit of a Consent Order is that each person has formally agreed to the financial settlement, and so cannot go back. It also draws a line under the financial ties that exist between you.
When it comes to separating assets usually the two biggest assets are the family home and pension assets.
The Family Home
There are several options to consider in splitting the family home;
- Sell the home and both parties move out and receive a share of the sale proceeds that they can put towards buying another home
- Arrange for one party to buy out the other party. This could either be through raising an additional mortgage or by offsetting the value against savings and investments.
- Keep the home under joint ownership (either with the same split or an altered share) with one partner continuing to live in it, perhaps until children have finished school and left home.
Many couples that are divorcing will have a joint mortgage on the family home and once separated may try to sort the mortgage so that only one person remains on the mortgage.
Lenders will usually allow one party to be removed from the loan, however, they will want to assess whether the remaining party can afford the ongoing payments.
If that party can’t afford to take over the mortgage it may be possible to get a ‘guarantor mortgage’ where a close relative (or your ex-partner) agrees to guarantee the mortgage payment if you can’t.
One thing to be wary of, particularly where you have decided to come to a mutual agreement without enlisting professional solicitors, is to ensure you value all assets correctly, particularly pensions.
Often divorcing couples will focus on short term needs, forgetting to include large benefits within pension schemes, with many often losing out by not demanding a share of an ex-partner’s pension. Often pension benefits can be worth as much as the family home and therefore it is important to get an accurate independent valuation of any pension pots.
When it comes to splitting pension assets there are a number of complex options to consider, it therefore important to seek expert legal and financial advice.
- Pension sharing where one partner obtains a share of their partner’s pension scheme. Usually, a personal pension fund will give a transfer value and the funds can be transferred into the ex-partner's name. This provides a clean break and is often the best outcome. If this route is taken it is important to ensure any new plan set up is right for your circumstances and objectives.
- Offsetting is where the value of any pension funds is offset against other assets, usually property. So one partner may choose to keep the house whilst the other partner retains the full benefit of their pension fund. Whilst one partner will end up with the property they will need to bear in mind that this is unlikely to provide them with an income in the future.
- Pension earmarking is where the ex-partner retains a share of the pension scheme. This option is less favourable as one party will have no control over the pension benefits and when they come into payment. They will also need to be aware of the potential loss of some or all of the benefits if their ex-partner dies before retirement.
If the pension sharing route is chosen it is important to note that this will usually provide your partner with a percentage share of the fund at the date of the order, but does not usually come into effect until the divorce is finalised. Therefore care should be taken on any pension contributions in the interim period as your ex-partner could also receive a share of new monies added.
Read my colleague, Nicola’s story about how she supported Laura through her divorce and helped her feel secure in her financial future.
Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.