Nothing feels fair when you’re getting divorced. Especially when you start looking at the financial implications of separating, as the inequalities can be huge.
Research from Prudential has shown that, for retirees, annual retirement income could be up to £3,600 lower, than for those who have not experienced divorce.
No matter how you came to be in this situation, or what you may be feeling right now, one of your top priorities should be rebuilding your financial life. The last thing you need is for the financial effects of divorce to put you in an unstable position which results in bigger problems for you and your loved ones in the future.
Rebuilding your finances
Your to-do list might feel more like an avalanche of responsibilities than a strategy to get your life back on track, so we have put together a checklist of things to do, check and review, in order to start rebuilding your finances and make sure that everything is in place for financial stability, both now and as you move forward.
1. The cost of the divorce process
According to research from Seddons’, the average cost of divorce in the UK is £70,243. You must take this into account and try to reduce costs where possible, if you think it is likely to affect your financial stability.
You will need to consider your living arrangements. Both current and future:
Firstly, what is happening to your current home? Will you be buying your partner out, or are they buying your share of the property? Maybe you are selling up and splitting the proceeds between you? However you are handling it, you must consider the effects on the wider divorce settlement.
Of course, whether you are moving home or staying in the marital home, you need to understand the monthly costs and adjust your financial plan to ensure that you can manage them on the new household income.
Second, if you are moving into a new home you need to decide whether to rent or buy, and how much you can afford to pay each month toward rent or a mortgage.
3. Bank accounts and payments
Separating your accounts from those of your ex can be difficult, but your bank, building society and other account providers should be on hand to make the process as smooth as possible.
4. Rethink your budgeting
Budgeting for a one-adult household is different to the budget you will have had whilst married. Whether you have or haven’t been in control of the budgets during your relationship, now is the time to reconsider how you will manage your finances from month to month.
5. Financial Protection
Life Insurance, Critical Illness Cover and income protection all have a part to play in maintaining your financial stability. Review old policies which are in joint names and decide what’s going to happen. If they are held in both names, who will change the policy, and will that mean that you need new cover? You can find out more about the different types of protection and why you need them here.
If your former partner is responsible for paying maintenance which your household relies on, you may want to investigate insuring that income. If your ex were to suddenly fall ill, sustain an injury at work, or pass away, you may be left in a dangerous financial position.
Our retirement plans change throughout life, and with a sudden change in your relationship status, your dreams and aspirations may have shifted. Make sure that you adjust your route to achieve those goals. This may mean working longer or changing your pension contributions.
As part of the financial settlement, you may receive a portion of your ex-spouse’s pension. How will that affect your plans and the wider settlement?
Having a financial buffer or safety net is one of the most sensible ways to protect yourself against financial shocks. Ideally, you should have between three and six months’ worth of living costs available to access at short notice.
9. Estate planning
Getting divorced makes your will invalid. That means that you need to take the opportunity to review your will, make any necessary updates to your beneficiaries and ensure that you have a current and valid will on file.
At the same time, you should contact your pension provider or workplace HR department and review your expression of wish forms. These forms tell your provider how your pension benefits should be distributed when you die. Research by Royal London has shown that more than 750,000 people have failed to communicate changes to their pension provider. You can read more about this issue here.
Unfortunately, both divorce and the financial consequences will undoubtedly involve a lot of paperwork. It is important at this time to keep all your documents and notices safe and easy to access, as you may need to reference them.
It is worth paying extra for additional copies of your Decree Absolute, as most companies will need to see it.
Talking to a professional
All the above and more need to be considered when you divorce. Of course, you will need to consider each point in more detail and using your personal circumstances as a foundation for any decision you make.
The best way to make sure that your financial strategy makes sense and will put you on the right track to meet your goals, is to consult a financial adviser.
For more support, contact us on 0800 612 8099 or request a call back by clicking here.