Going through a divorce is a challenging and emotionally-charged experience. It can be complicated and messy, especially where young children, or other dependents are involved. Financial decisions can cause friction in every relationship, even at the best of times. But in the middle of a divorce, untangling years of financial ties can be difficult and stressful.

But the decisions you make during a divorce can significantly impact your financial future. That’s why it’s important to involve a financial planner, alongside your solicitor, from the start. They can give you a clear understanding of your financial situation, the impact of the divorce (including unexpected tax bills) and what life could look like when you’re through the worst.

We explore how a financial planner can guide you through various aspects of divorce, helping you to make sound financial decisions for a fair settlement.

It's crucial to consider your pension when negotiating a divorce settlement

Pensions, divorce and protecting your future

Your pension is likely to be one of your most valuable financial assets, and it’s crucial to consider it when negotiating a divorce settlement. Seeking financial advice is essential to ensure a fair calculation of future benefits rather than relying solely on the pension’s value at the time of divorce. There are a couple of ways pensions are typically dealt with in divorce:

– Pension Sharing Order: This involves dividing the pensions between both parties, providing a clean break. A pension credit is awarded as a percentage of the pension’s transfer value, which can then be transferred into a new or existing pension scheme.

– Pension Offsetting: This approach offsets the value of a pension against other assets, such as the family home. While it allows one party to retain the entire pension, achieving a fair split of assets can be challenging.

Protecting your rights to the family home

Deciding what to do with the family home is often one of the most difficult decisions during a divorce, especially when children or other dependents are involved. It might be very difficult, emotionally, to think about moving out, but it’s crucial to consider the financial implications of staying put. An IFA will work with you to assess whether you can afford to take on the mortgage, which may involve buying out your partner’s share.

If your ex-partner owns the family home in their sole name, you can take steps to protect your rights and prevent your ex-partner from selling the property or applying for a larger mortgage without informing you. In England and Wales, you can do this using a ‘matrimonial home rights notice‘ or ‘home rights notice’ if the property is registered at the Land Registry. In Northern Ireland, you may be able to protect your position by registering a ‘matrimonial charge.’ However, protecting your rights in Scotland is a more complex matter that requires advice from a solicitor.

– If the property is in both your names, you may own the property as ‘joint tenants’, in which case you’ll own an equal share. Or you will be ‘tenants in common’, where you each own a specified share of the property.

The process of divorce can take several months, even years. If you own the property as joint tenants, you may want to change ownership to tenants in common. This means that if you die before your divorce is settled, your share will pass to your chosen beneficiaries rather than your ex-partner. This is especially important if you have children from a previous relationship.

It's important to understand that even an uninvolved ex-partner may be entitled to a share of the business

Dividing savings and investments

Dividing savings and investments during divorce is generally more straightforward than dealing with pensions. In Scotland, only savings and investments accumulated during the marriage are usually considered, while courts in England, Wales, and Northern Ireland take all assets into account. However, it’s still advisable to seek financial advice due to potential tax consequences and charges.

– ISAs can only be held in one person’s name, so dividing them during divorce will result in the loss of tax benefits. Transfers of ISAs can only be made to the same individual or a former spouse in the event of death, not divorce.

– Other tax-efficient investments, such as offshore bonds, Venture Capital Trusts (VCTs), and the Enterprise Investment Scheme (EIS), add further complexity. Ownership transfers of VCTs and EIS can result in complications due to the attached tax benefits and restrictions. It’s crucial to consult a financial planner who can navigate these complexities and provide guidance based on your individual circumstances.

Preserving your business

If you own a business, it’s important to understand that even an uninvolved ex-partner may be entitled to a share of the business in a divorce. The court considers all assets and may not distinguish between business and other assets unless there is legal documentation stating otherwise.

While the court generally tries to avoid disrupting a business, there are instances where assets may need to be divided or the business sold, which can have significant financial implications. A financial planner with expertise in business matters can help you understand your options and make informed decisions about your business during the divorce process.

Children and divorce

Aside from the emotional impact, divorce can also have financial consequences for any children involved. As well as deciding where and with whom they should live, financial support and protection must also be considered.

Maintenance payments for general upbringing or specific needs like school fees may be a factor. In some cases, setting up a trust can help safeguard your children’s financial future.

It’s also crucial to protect against serious illness or death of the parent providing maintenance. Without proper protection, the surviving parent may be at financial risk, which could compromise the child’s quality of life.

A financial planner can advise on appropriate safeguards and financial provisions for the children’s wellbeing, no matter what happens to either parent.

While a solicitor focuses on the legal aspects, a financial planner considers the longer-term financial implications

The role of a financial planner in divorce in guiding your financial future

A financial planner plays a vital role in helping you navigate the complex financial landscape of divorce.

Your joint assets, your home and your finances might seem impossible to divide up fairly, and the thought of trying to get back on your feet after you’ve separated will seem daunting. While a solicitor focuses on the legal aspects, a financial planner looks beyond the immediate settlement and considers the longer-term financial implications of the decisions made.

Why choose an Amber River financial planner?

When seeking a financial planner to help you through divorce, Amber River Financial Planners can be a trusted partner. They understand the unique financial challenges of divorce and can provide tailored guidance that helps to shape your divorce settlement to ensure fair treatment for everyone involved.

Amber River has a network of Chartered financial planners, right across the UK. If you want to set up an initial appointment, call 0800 915 0000, or alternatively use our contact form here.