7 Key Financial Planning
Steps on Divorce
A short guide to achieving financial peace of
mind, before, during and after divorce.
7 Key Financial Planning Steps on Divorce
Introduction
Having a financial plan can help secure
your future and give you peace of
mind, here is a short guide on the key
financial steps to consider on divorce.
Unexpected life events such as divorce can throw your
financial plans and investment arrangements into
disarray and create a sense of unsettling financial
insecurity. Our specialist, professional advisers can be
key in helping clients review their situation, revise their
objectives and navigate what may be uncertain
territory. The knowledge that your financial situation is
being reviewed by your own independent financial
adviser can help deliver peace of mind.
Our cash flow modelling and budgeting capability
helps to assess and identify monetary needs and ensure
any financial settlement is sufficient for its purpose.
With specialist knowledge in ever changing areas such
as pension sharing, financial protection and
investments, our expert team is here to help you
through all stages of the divorce process and help you
view the future with confidence.
We have identified 7 key financial steps to achieve
financial peace of mind before, during and after divorce.
1. Get organised
It can be difficult to organise and gain a firm grasp of
your finances if you have not been directly responsible
for them during your marriage. However you will be
required to complete a detailed financial statement
(Form E) when progressing divorce proceedings. Help is
at hand from your solicitor, or financial adviser, when
completing your Form E. However the more personally
organised you are the less time and hence cost will
arise from the involvement of your professional advisers
at this stage of proceedings.
It can prove empowering to gain a fuller grasp of your
finances during divorce proceedings and this is good
preparation for when you assume personal
responsibility for your finances post-divorce.
2. Fully disclose
It is vital that you make full disclosure of all financial
assets and income during divorce negotiations. Failure
to do so has serious legal consequences and can
result in significant, future litigation costs.
Failure to disclose may be a deliberate, if ill conceived,
tactic by one party to keep certain assets outside of a
divorce settlement. However non-disclosure can also
arise purely by mistake. For example a pension
provider’s failure to provide annual statements might
result in a particular pension asset accrued during a
previous period of employment being omitted from
disclosure. Being organised and methodically cross
referencing pension assets against particular periods
of employment will avoid the consequences of such
unintended errors of omission.
3. Mitigate Tax
If possible it is sensible to liaise with your estranged
spouse to ensure that as far as possible you effect any
tax planning opportunities available to married
couples prior to divorce. Jointly achieving tax
efficiency within your financial affairs prior to reaching
a divorce settlement is likely to increase the value of
assets available to both parties.
This is particularly important for assets that are subject
to a potential Capital Gains Tax (CGT) liability on
disposal. For example it is possible to benefit from the
inter spouse CGT exemption provided any transfer of
assets is conducted prior to the end of the tax year in
which a married couple separates.
Even in circumstances where such co-operation is
unlikely it is sensible to consider rebasing any assets
held solely in your own name. This may reduce any
future potential CGT liability that might arise as a
consequence of transferring assets when complying
with a financial order.
The cost of requesting assistance from your
professional advisers, particularly your financial adviser
or accountant, in this regard could quite easily be
offset by the resultant potential tax savings.
Our cash flow modelling and budgeting capability helps
to assess and identify monetary needs and ensure any
financial settlement is sufficient for its purpose.
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For more information call 0333 323 9060
7 Key Financial Planning Steps on Divorce
4. Clarify your investment risk exposure
6. Take time to reflect and plan
Assets such as cash are easy to comprehend, what you
see on the bank statement is the value of that asset.
Once a divorce settlement has been reached many
clients are relieved to have reached the end of what
can be an arduous experience. However this is
invariably the point at which further advice will be
required with regards to how best to deal with a
financial settlement, for instance the purchase of a
new property, the investment of a cash sum or a
pension sharing credit.
However the value of other financial assets such as
pensions and Individual Savings Accounts (ISAs) with,
for example, stock market exposure can fluctuate on
a daily basis and significantly so during the course of
protracted divorce negotiations.
The investment risk exposure of your joint marital
investment portfolio may reflect your spouse’s attitude
to investment risk but might not necessarily reflect your
own. Furthermore adopting a lower level of investment
risk within assets that may be shared as part of a
divorce settlement will provide greater certainty and
reduce the likelihood of a sudden stock market fall
compromising your joint asset base.
5. Don’t be scared of pensions
One of the most complex areas encountered during
divorce negotiations is that of pensions. After the main
residence the most significant family asset is quite
often accrued pension entitlement. Both parties are
jointly entitled to pension assets regardless of whether
one party to the marriage may have accrued
significantly more than the other.
There are a myriad of different technical terms used in
reference to pensions on divorce for instance pension
sharing, offsetting, final salary, defined contribution and
so on. Although your solicitor will be able to provide you
with broad guidance in this area the vast majority of
solicitors will recommend that you receive specialist
financial advice in respect of any pension assets that
might become subject to divorce negotiations.
However employing the skills of a financial adviser
experienced with dealing with pensions on divorce will
help to demystify this complexity and render pensions
a less scary prospect during divorce negotiations!
The new pension freedoms provide for far greater
flexibility in how pension benefits may be drawn and
render them even more crucial in delivering a lifestyle
post-divorce. However without carefully considered
advice certain unwelcome tax liabilities might arise
when drawing benefits. There’s nothing to be scared
of, you just need to handle pensions with care!
Although there may be a temptation to get on with
the rest of your life and make such decisions as soon
as possible it is important not to rush financial decisions
that may impact your lifestyle long into the future.
Reflecting upon and reviewing your lifestyle and
financial objectives is an important step post-divorce.
The help of a financial adviser is crucial at this point
but it is important to consider your lifestyle objectives
and the level of future expenditure that will be
required to achieve your aspirations before making
any investment decisions. The use of lifetime cash flow
modelling with your adviser will be vital in establishing
whether your aspirations are realistic and will inform
subsequent investment decisions.
However be careful to only appoint an adviser who will
charge a fee based upon the work conducted on your
behalf and not contingent upon you investing into, for
example, a particular type of fund or investment. During
the period of reflection following divorce it is invariably
prudent to hold assets in cash until you have had time
to formulate a plan for the future.
Hence it is imperative to instruct an adviser whose
interests are clearly aligned with your own and is
happy for you to hold cash until you feel comfortable
doing otherwise. For example it is perfectly
acceptable to hold the proceeds from a pension
sharing credit in cash within your own pension until you
are happy to adopt a longer term investment strategy.
7. Never stop planning
Establishing a financial plan once you have reached a
settlement is clearly sensible however it will be worthless
if you fail to continue planning. It is vital that you revisit
your objectives at least annually and assess whether
you remain on track to achieve your lifestyle aspirations
or even amend those objectives as time progresses.
Taking ownership of your finances before, during and
after divorce may appear daunting but by taking a
few relatively simple steps, in coalition with your
advisers, you will be empowered to achieve your
future lifestyle aspirations.
www.theprivateoffice.com
For more information call 0333 323 9060
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03/2017
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