Reframing divorce

The impact of divorce

Divorce is one of the most financially disruptive life events there is – so disruptive, in fact, that fear of what comes next often stops women from filing for divorce in the first place. 

Historically, where a partner has managed family finances, a woman might not even be aware of what she owns and the level of independence she could have. The risk of separating from a partner without knowing the financial repercussions is often too much. Research suggests that women’s household income drops by around 33% on average following divorce, compared to around 18% for men. 

The solution to this lies in more financial transparency and reclaiming your financial self, regardless of whether you have separated from your partner, or think you ever could. We’ve put together a guide for International Women’s Day that covers the psychology of taking back control and changing your relationship with money itself. 

Check it out here: International Women’s Day – Reclaiming your… | Charles Stanley 

The three mistakes we see most often

For women already in the middle of a divorce process, here’s some real-world, practical advice:

1. Don’t undervalue pensions 

In trying to navigate the divorce process to get the fairest deal possible, one of the most common mistakes is to focus too heavily on the family home at the expense of other long-term assets like private or workplace pensions.

Sure, the family home is probably the most valuable thing you’ll ever own. It’s a symbol of security, so wanting to retain it is entirely understandable. But property, crucially, doesn’t provide retirement income unless it is sold or used to release capital. It’s retirement income that counts in the end. 

A divorce settlement that gives one party complete ownership of a shared pension is usually a red flag. This is especially the case if the pension is a defined benefit scheme. The defined benefit scheme represents a promised income for life, often inflation-linked, and it can be worth hundreds of thousands of pounds when capitalised. The Pensions Policy Institute has repeatedly highlighted that divorced women are at higher risk of pension inadequacy later in life – this being an issue that might only show up 20 or 30 years down the line.

It’s important to be conscious of the different ways pensions can be split. Usually, it’s safe to assume they’re split 50/50. But it’s up to a court to decide what’s fair, and another possible arrangement one party could suggest is pension offsetting. This is where one party takes one asset, like the house, and the other party takes the pension. Pension-sharing orders are usually far simpler to ensure a fair 50/50 split and a fair level of security in retirement.

2. Being unprepared for the future

Another consideration for divorcees is how their household income will change.

In most cases, the practical costs of life – household bills, mortgage payments, and childcare –barely change at all, despite two incomes becoming one. The financial shock can be very stressful, in particular for women whose household income drops by a third on average, compared to 15-20% for men. This is partly down to the fact that women step back from their careers to have children and many only reclaim financial independence later in life. 

This is another area where a financial planner can add real value. Cash flow modelling can show what life might realistically look like under one income – five, ten or twenty years down the line. And depending on the assets you own, a professional might be able to help you find new ways of generating income. Having these conversations early can even influence the divorce settlement itself and the chances that the final agreement works long term in the real world.

3. Doing it alone

The final misstep is thinking about getting financial advice only after a settlement is finalised. In reality, getting clarity about what divorce could mean in practice is sensible and fair before deciding to go ahead. Our advisers are neutral, plain-speaking, and show respect, including to those not in the room. We never like to see divorces announced. But advice during the process can inform negotiations and take a considerable weight off your shoulders during what is already a difficult time emotionally.

The untangling of assets between you and your ex-spouse, especially during your mid-40s, is no small feat. That’s why having an experienced and empathetic professional in your corner can be a game changer. They’re emotionally unbiased, they’ve seen it all before, and perhaps most importantly, they will talk to you about the future, not about the past. 

The “rebuilding” steps with an adviser may include some of the following:

• List assets in full
• Valuing pensions
• Combining pensions
• Cash flow modelling for retirement
• Providing investment advice
• Outlining an emergency fund
• Single-income budgeting
• Updating wills
• Updating lasting powers of attorney
• And, much more.

With no second salary to absorb shocks and potentially having to chart a financial course of your own in a new and different way, it can be overwhelming without support. If you would like to discuss your circumstances with our team in confidence, reach out today.