Divorce is an unpleasant subject and difficult for everyone involved, particularly any children.
Yet, of course, it happens and you need to be able to not only navigate the minefield of emotions and stress involved but also the finances too.
What will happen to the family home? What about the debts you have accrued together as a married couple / civil partnership? What about cash, joint accounts and pensions?
In this article, we’re going to address five key financial aspects of divorce which you need to factor into your decisions if you’re currently going through this difficult time.
Please use this content for information purposes only. It is not offered as financial advice. To gain financial advice for our own situation, needs and goals, please contact a member of our team here at Cedar House to speak with a financial adviser.
Many married couples going through the divorce process will also be homeowners with a mortgage. In some cases, the couple in question will have one than one property – such as a Buy To Let or other arrangements.
These assets need to be dealt with appropriately as you navigate your legal separation. This can be particularly difficult, as we tend to attach a lot of sentimental value to our homes. Yet you need to be careful not to make important decisions about property out of emotion.
For instance, in some divorce settlements one partner will agree to keep the home and let the other partner (typically the man) keep the pension. This can leave the homeowner with restricted income options for later in life, during retirement, if they are not careful.
A financial adviser will be able to help you identify different options about how to best split the property, to ensure you are not left penniless later on. Sometimes, it makes sense to keep the home and have the other person agree to buy you out. Other times, you might be better off selling the house and downsizing to something more sustainable.
In an ideal world, you will have no debts outstanding at the time of your divorce proceedings. However, this often isn’t the case due to finance agreements (e.g. the car), unpaid credit card bills and other important debts (e.g. overdrafts) which you both share in your names.
Obviously, the biggest debt to pay is likely to be your mortgage. It is vitally important that you seek professional, independent financial advice when sorting through significant debts like this. The advice costs money, of course, but in all likelihood, the cost you’d be needlessly paying in interest will far exceed this cost. On balance, therefore, it is often a good idea to seek advice.
In many cases, paying off your debts as soon as possible will be the best course of action. Yet this can take time, and also a careful plan to make sure you don’t overstretch your finances.
This is often an area that people neglect when going through a divorce. After all, most of us don’t really notice our pension contributions coming out of our payslip each month. We often have an idea that we have a pension pot somewhere, but it can feel far away and not all that important for the present situation you are going through.
Please understand that it is vitally important to look at your pension(s) when going through a divorce. It is often little use, for instance, to throw everything into trying to keep the family home in the final settlement and let your partner keep all of the pension money. How will you afford to live in retirement without any kind of pension savings?
Again, speak with a financial adviser to gather all of the relevant information about your pensions – both your own, as well as your spouse’s. From there, you can work out a financial plan together which not only accounts for your short-medium term finances but your longer-term retirement plans as well.
It is likely that both of you will share insurance policies which cannot be easily divided. For instance, car insurance, income protection policies and private medical insurance all fall under this important bracket.
You will need to review these policies during your divorce, as the level of cover you need is likely to change. It might be possible to get out of one contract with your protection provider and start up a new, more appropriate one. Speak to a member of our team if you need assistance with this important area of financial planning.
#5 Short-term finances
Last but certainly not least, in the immediate situation of your divorce proceedings both you and your spouse will need money to keep financially afloat.
If it is at all possible and safe to do so, it is usually best to have an honest conversation with your spouse about this. After all, it’s in neither of your interests for one or both of you to slide into debt during this difficult time. Remember, until the divorce is finalised your debts will be legally shared.
Talk about how each of you will cover your living costs whilst you go through the divorce. If things are too difficult and hostile to do this, then at the very least make sure you speak with a financial adviser about your own income and expenses. Together, you can devise a budget to keep you supported and prevent you from sliding into debt.
It isn’t a very nice topic, as mentioned at the beginning. Yet going through your financial plan during a divorce can, for many people, actually bring a greater sense of inner peace and stability during this difficult time.
A great sense of peace of mind can come when you know exactly where it is you now stand financially, when you know what you are going to do about it, and when you have set contingency plan in place to protect both you and your children in case things don’t go to plan.