5 important reasons to speak to a financial planner before and during a divorce

Ending a marriage is a big decision that takes a huge emotional toll on you. It is likely that your life will change significantly. As you navigate your way through this difficult time, it’s easy to forget about some of the financial implications.

Divorce may have an immediate and lasting effect on your wealth. As such, you may want to consider working with a financial planner. They will be able to outline all the areas you may want to think about before you speak to a lawyer. Following a divorce, they can help you create a new financial plan designed to get your financial future back on track.

Not only is divorce expensive in legal fees – data reported by the Evening Standard (1) found that the average fees for a divorce are £14,561 – but research from Legal & General (2) also shows that men see their income fall by 18% and women see theirs fall by 33% after a divorce.

This disparity is often due to the gender pay gap, as women may be more likely to earn less than men. Additionally, 74% of men who divorce are the primary breadwinner in the household, compared with only 18% of women.

As such, it may be a good idea to consider how a divorce could affect your finances and agree on a settlement before filing the decree absolute. That way, you have an opportunity to plan accordingly.

Fortunately, working with a financial planner before, during, and after a divorce may help to secure your wealth and create a new financial plan. This will allow you to continue working towards your long-term goals afterwards.

Here are five reasons why financial planning is important during a divorce.

1. Plan ahead with cashflow modelling

The transition from living as a couple with joint finances to living independently can be a challenge.

Your income may well decrease if your ex-spouse was contributing to the household earnings, and your expenses will likely change too. In many cases, your goals and the kind of lifestyle that you want may also change.

As such, it’s important to consider how much income you need to fund your chosen lifestyle and meet your financial obligations. You may also want to account for any long-term goals so you can determine how much you need from the divorce settlement.

A financial planner can use cashflow modelling to map out your financial future and give you an estimate of what your outgoings are likely to be following divorce. They may also tell you how much income you could generate from assets you are entitled to as part of a divorce settlement.

Knowing how your financial situation will likely look after a divorce could help you navigate the process with confidence.

2. Secure a fair settlement

Reaching a fair settlement is vital during a divorce, and that looks different for every couple. While an equal split may be the best choice for some people, it often depends on your circumstances.

For example, if you have children, the person who is taking care of them may have significantly higher outgoings. As a result, they may need a larger share of certain assets and they may keep the family home.

So, it is important to value all assets and split them in a way that is suitable for both parties. Unfortunately, many couples fail to account for vital assets and don’t share their wealth equally.

For example,  the prioritisation of the family home whilst overlooking pension savings, even though the latter could well be worth more. This may be a costly mistake in the future.

A financial planner can help you build a complete picture of your wealth so you consider all your assets, including pensions, during a settlement. This means the outcome can be as fair as possible.

3. Learn about your pension options

Deciding how to divide your pension during a divorce is important as a fair split ensures that you can both continue working towards your retirement savings goals. Unfortunately, this is something that many people overlook.

Indeed, according to PensionsAge (3), fewer than 1 in 8 divorces between January 2016 and August 2022 included a pension split.

There are several ways to split your pension during a divorce settlement and you may want to consider which one is most suited to your circumstances. Your options include:

• Pension Sharing Order – A court decides the fairest way to split the pension between the two people. Any amount you receive after the decision is your money and you can manage it however you like, including transferring it to another pension.
• Pension Attachment Order – This option redirects a portion of the pension to an ex-spouse when the pension holder starts drawing an income from it. This can also include funds taken as a tax-free lump sum.
• Pension offsetting – The pension holder keeps the full pension, but the value is offset against another asset. For example, your ex-spouse may keep their pension while you keep the family home.  
• Deferred lump sum payment – Both parties agree to decide how to split the pension at a later date, with both receiving a lump sum.

A financial planner can take you through these options and help you decide which one is right for you.

4. Revisit your protection options

When you were married, you likely organised all your finances as a couple, and that includes protection such as life insurance or income protection. As such, you may have a joint policy, which is no longer suitable once you divorce, and you need to decide what happens to it.

You have two main options here:

• One person takes on the policy as a single policy – this may involve paying all the premiums yourself if you take it on.
• You cancel the policy, and both find a new one – bear in mind that if you have held the same policy for many years, because your age and lifestyle are taken into account when calculating the cost of protection, your premiums could well increase.

Your protection needs will likely change as your circumstances change too, so now is a good time to review them. A financial planner can help you find suitable protection that aligns with your new lifestyle and goals.

5. Create a new financial plan

A divorce is naturally a difficult time but it’s also the beginning of a new chapter. In this new phase of life, you may have different goals and your financial situation will likely change.

Consequently, your old financial plan may not be suitable for you anymore.

Working with a financial planner now to create a new plan could help you begin this new chapter of your life in a more secure financial position, meaning you may be more likely to achieve your goals.

Get in touch

If you are going through a divorce, or even considering one, we are here to support you in this difficult time.

Email info@aspirafp.co.uk or call us on 01454 632 495

Risk warnings

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. 

The Financial Conduct Authority does not regulate cashflow planning.

Note that protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse. Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.

(1) www.standard.co.uk/news/uk/most-divorces-london-uk-census-data-b1062398....

(2) group.legalandgeneral.com/en/newsroom/press-releases/the-divorce-gap-women-see-incomes-fall-by-33-following-divorce-compared-to-just-18-for-men

(3) www.pensionsage.com/pa/Less-than-one-in-eight-divorces-included-a-pensio...

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