Setting a realistic budget at outset will help to control costs and save you time and stress later when you may struggle to balance conflicting obligations.
The process of separation and divorce can take many months and in some cases, years to complete. Therefore it is important to ensure that you have enough capital and income to provide for you and your family over this period. Try to take time to set budgets correctly and make sure they are realistic.
If debts are an issue it is essential to adopt an early plan of action to ensure that all parties are aware of their responsibilities and to ensure that creditors are kept well informed.
Ensure that you disclose all of your financial assets and income regardless of what they are and where they are held. It is easy to think that it is better to hold assets to one side in the hope of keeping these out of any settlement.
In my experience, the results of non disclosure are increased costs and increased suspicion on the other side which can often be counter productive. In addition, you can run the risk of being publicly named and having your reputation damaged.
If a more favourable settlement is achieved by non disclosure and this is discovered in the future, this will definitely lead to more costs and potentially to a less beneficial settlement than had full disclosure taken place in the first place.
What is your attitude to and tolerance to risk? Does it match with your ex spouse? Are you worried about how much risk is being taken in the matrimonial property, pensions and investments? Do you understand the underlying risks within all the marital assets and have you considered whether these risks can be mitigated or how things might change if the assets were to fall significantly in value. Risks to be aware of might be:
- Businesses - how will the company perform whilst the main owner/manager is going through divorce.
- What are our ISAs, pensions, shares invested in and are they well diversified?
4. State benefits
Have you checked whether you are entitled to any state assistance now or in the future. Do you know what your rights and entitlements are to state benefits on retirement. For example, did you know that you could be entitled to a part of your ex-spouse’s pensions including their State Second Pension.
For example, were you aware that you can claim against their National Insurance record to improve your basic state pension and that the Second State Pension can be subject to a pension sharing order?
Simply put by reducing tax liabilities this will inevitably result in there being more cash available to both parties. Are you utilising all of the available allowances?
Always consider the tax consequences of any changes or transfers you are making and in particular, the timings. If financial arrangements can be agreed and concluded within the tax year of separation, transfers of assets between the parties in that year will be free of capital gains tax.
By carefully distributing assets both income tax and capital gains tax can be mitigated. The timing of such events plus the pending change to a 50% top rate of tax makes sound tax planning vital within divorce settlements.
Are you both in good health? Have you considered what impact ill health or lifestyle choices (like smoking and alcohol) may have on the pension settlement or on the ability to secure life assurance cover in the future. Take time to consider these aspects before proceeding.
7. Financial Planning
At the end of the divorce, many clients express relief that the process has finished but are anxious at what the future may hold.
By readdressing your goals and objectives you can approach the future with confidence. A financial planning review can help with goal setting and by using a lifetime cashflow forecast indicate whether such goals are realistic or not.
These tips have been reproduced here for guidance only. Although I am a Resolution Accredited Independent Financial Adviser my comments are for general guidance and do not constitute financial advice. They should not be seen as a substitute for detailed financial and legal advice.