Divorce and Finances – Avoiding the Pitfalls

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havenifa


Posted on: 17th January 2018

Last week is often dubbed “Divorce Week” by solicitors, as it is regarded as the first opportunity for couples to enquire about divorce following a stressful festive period.

In reality, the stats don’t bear this out. Divorce rates don’t climb in January, but who are we to pour water on another urban myth? There will be plenty of couples out there who have decided that, for whatever reason, now is the time to make a clean break. If this is you, it is likely that money issues are high on the negotiating agenda.

Finances and Divorce

A survey conducted by the law firm Slater and Gordon recently, revealed that one of the most common reasons for marriage break-ups are money worries. And that finances are a major contributing factor in one in ten divorces.

Discussing finance in the middle of an extremely painful and emotional break-up may not seem appropriate, but it is important to know your position and understand the major pitfalls and how to avoid them.

The latest stats show that that adults who are divorced or separated are twice as likely to have no savings or investments compared with those who are married. It’s also not uncommon for one partner to be in charge of the family finances, so when it comes to divorce, not only do you need to be aware of financial settlements, but also to have a reasonable financial plan for the next chapter in your life.

Maintain Credit Rating

After a divorce, understanding the impact on your pension rights and making plans for future independent provision is very important. There are numerous financial products and agreements that couple share, from mortgages to credit cards etc. And the longer you have been together, the more tightly wound together even basic finances are.

It is important to make sure that all joint credit cards and accounts are closed and paid off in full. Or at least changed to a single name account. In terms of credit ratings, you may need to build up your own independent score and improve your rating to ensure that you are not turned down for any future loans.

Pension and Life Insurance Provisions

Pensions are usually the last thing on someone’s mind who is going through a divorce. However, after the family home, pensions can actually be the biggest asset at stake.

It is important to understand the impact on your pension rights and make plans for future independent provisions. This is particularly the case where one partner may have expected to rely on the accrued pension the other.

Similarly, if a couple have life protection cover in place in the form of a joint policy,  you will need to check the policy terms. Some terms include a ‘Joint Life Separation Option’, which allows the contract to be amended to cover both parties individually.

There are also usually options to allow you to increase the amount of cover following life events, which includes separation and divorce. This can be appropriate when you have taken on a new or larger mortgage or other debts.

Wills and Inheritance

Wills need to be re-written after any life changing event. After a divorce or separation, it is important to write a new will to reflect the change in circumstances. The first step in this process is to consider what assets are yours to pass down, and then to decide how you want these to be distributed.

Divorce can be a major trauma in people’s lives. But with the right financial advice and support, the monetary risks involved can be minimised and a financial clean break can take place as well as a personal one.

For more information about your assets, pensions and investments, talk to the experts at Haven IFA.