Divorce - financial impact - by independent financial adviser John Bramwell

Divorce

What are the financial repercussions?

Apart from the obvious ones of loss of income or increased costs, there are many repercussions to consider if you are in the process of divorce. These mainly involve the equitable sharing of property, investments and pensions, and ensuring that you and your children (if still dependent on you) are protected.

Housing - Legal advice should be sought before any action is taken which involves moving out of the family home. However, divorce means that one half of a couple is likely to need re-housing and this may involve a mortgage to finance a property purchase. Ultimately the family home may need to be sold, depending on the circumstances.

Savings and investments – These will need to be shared out and may require selling or re-assignment. For bank or building society savings and deposit accounts, this is usually quite straightforward and simply means opening accounts in single names. However, for investments more care is needed. This is because consideration should be given to their current and future value, their suitability given the changed circumstances, and whether they should be kept or sold.

Pensions – This can be a major area of dispute during divorce procedures. One of the main reasons is because valuations of some pension funds can vary quite significantly, particularly final salary schemes, depending on what assumptions are used in the calculations. There are now three ways that Divorce Courts can direct the sharing of pension benefits: offset, earmarking and sharing.

Protection – The financial effects of illness and death can become more devastating after divorce. Jointly held policies need replacing and employee benefits, such as death-in-service life insurance and private medical insurance, are lost by one half of the couple. Life cover and investments are sometimes linked, such as in endowment policies, and replacement cover is required.

Wills – How an estate should be distributed on death is not usually an important financial priority for divorcing couples, but it is often important as a matter of principle.

What should I do?

Although divorce can be distressing and time consuming, it is essential that a full independent financial review of your situation is undertaken as soon as possible, to ensure that you are not placed at a financial disadvantage. Further reviews are advisable as your circumstances change.

Couples who are attempting to divorce amicably and avoid going to court may now take advantage of a new practice known as Collaborative Law. In these cases, a trained Independent Financial Adviser may also be involved, acting as a consultant to advise both parties on the long term as well as the short term impact of any financial solutions discussed.