Divorce is a time of upheaval. It’s often the catalyst for several big changes throughout your life and can mean a significant amount of pressure. One of the areas that’s likely to be affected in both the short and long term is your finances.
But what steps should you take when you’re going through the process of divorce or dissolution? These six steps can help you move through the process more smoothly.
Discuss immediate financial concerns following separation
While your life is facing some huge changes at the moment, you’ll still have much of the same immediate financial responsibilities.
Getting a clear understanding of who will be paying the mortgage, utility bills, or childcare costs, for example, is crucial. A bit of miscommunication can have a serious impact. If you miss bills you run the risk of having penalties to pay, services stopped, and it could even affect your credit score and, therefore, long-term financial future.
It can be difficult to decide how to proceed, but it’s an important discussion to have.
Tackle the admin tasks
At the start of the divorce process, admin tasks probably aren’t on your radar. But there are some that you should tackle as soon as possible.
Steps such as closing joint accounts and removing your former partner from your will can seem daunting and final. However, they can also improve your security and give you a clearer picture of the decisions that you still need to take.
Value your assets
When you’re in the process of divorcing, some people jump into discussing the distribution of assets straight away. However, you need a clear picture of the value of your combined assets to really understand what you’re agreeing to.
From cash savings held in a bank account to property, it’s important to take stock of what you own, as well as the assets of your former partner, when divorcing. There are many instances of where couples have forgotten about important assets, only realising once it’s too late for these to be considered.
One of the most commonly overlooked assets is a pension. As you can’t access your pension now, it might not have crossed your mind to consider it. But you may be entitled to a portion of your ex’s pension savings and vice versa. 70% of couples do not discuss their pensions at all prior to a divorce, research from Age UK found.
If you’re entitled to some of your spouse’s pension you usually have several options. The first is to take a greater level of the shared assets now, acting as compensation for the value of the pension you’ll lose in the future. Alternatively, you could receive a portion of the pension now to invest under your control or receive your share when it begins to pay an income.
Consider maintenance costs
Depending on your relationship and finances, it may be expected that one of you pays ongoing maintenance costs. It’s important to discuss here both how much will be paid and how long the maintenance will last for.
Ongoing maintenance payments are often used to support the upbringing of children until they turn 18. You may choose to agree maintenance costs between the two of you informally but it’s often advisable to seek professional support. In some cases, it can be beneficial to use the Child Maintenance Service to calculate and handle payments or obtain a court-ordered arrangement, though both will come with additional costs.
Maintenance is a key issue if you have children but there are instances when it will need to be discussed even when you don’t have children together. This is known as spousal maintenance and is payable in certain circumstances, if your spouse doesn’t have the means to support themselves, for example.
Distribution of assets
With immediate concerns taken care of and a clearer picture of what your financial obligations will be following divorce, you’re in a better position to begin discussing the distribution of assets.
It’s a procedure that can often be fraught with challenges, as it’s likely to be an emotional process for both of you. There aren’t set rules about how assets should be split because when dividing assets several different factors are considered.
Again, it’s possible to decide on the distribution of assets between the two of you. However, it’s often advisable that you at least seek professional advice and ensure any agreement is noted formally.
Start thinking about your long term
When you’re dealing with a divorce, it’s often easy to focus on the now. But you should be considering your long term too, even before a divorce is finalised.
It can start with understanding your post-divorce income and assets. This will clearly have an impact on your future. However, it should go beyond this too. A divorce often gives you a new outlook on life and it’s likely that some of your aspirations and priorities have changed too. Thinking about what you want to achieve over the short, medium and long term is just as important.
Don’t wait until after your divorce has been finalised to seek financial advice if possible. We can help you understand how this life-changing event will impact your finances. We’re also in a position to offer you advice on a range of areas, from valuing your assets to how to structure them to get the most out of them as you make plans to move forward.
Craig Harwood, one of our financial advisers specialising in divorce financial planning, says “I have dealt with several pension sharing orders during my career and appreciate it can be a daunting experience. I always start with a step by step breakdown of the whole process and how pension sharing works alongside the divorce process and the key timescales involved. In my experience it is vital to get advice early on so you are aware of all your options and can start planning your future. Although retirement might be the last thing on your mind when going though the stresses that sometimes come with divorce, it is crucial to start thinking about your individual retirement plans and steps to make sure these can still be achieved.”
If you’re going through a divorce or dissolution and would like to better understand how it will affect your financial security, we’re here to help. Please contact us today to start financially planning for the next chapter of your life.