Going through a divorce can be one of the most stressful and upsetting experiences you can endure.
Aside from the emotional challenges, the financial elements of a divorce can further amplify the stress and complexity of the situation and, unless well managed, can leave you in a position of financial insecurity.
From splitting your pension assets to selling your property and ensuring you have the right protection in place, there are several factors that are integral to securing long-term financial stability in the wake of you and your partner splitting.
Despite this, FTAdviser reports that just 5% of people going through a divorce seek help from a financial planner.
Read on to find out three ways a financial planner can help you achieve financial security following a divorce.
1. Deciding how to split pensions
Pensions play a crucial role in attaining financial security, yet they are frequently overlooked in the context of divorce.
A survey by interactive investor found that almost half (49%) of divorced people admitted to not discussing pensions during their divorce proceedings. Furthermore, FTAdviser reports that 56% of married women and 60% of married men don’t have arrangements in place to protect their pension in the event of a divorce.
There are a few common methods for dividing pensions in a divorce settlement:
- Pension earmarking – Pension earmarking gives one party a portion of the other’s pension once they start drawing from it. The amount given can either be a specific figure or a percentage of the pension.
- Pension sharing – Pension sharing is similar to earmarking, as the partner with no pension or a pension of lower value may be given a portion of “pension credit” from their ex-spouse’s pension. However, the difference is that the partner receiving the pension credit can claim it immediately without waiting for the other to start accessing their pension, allowing the divorcees to make a clean financial break.
- Pension offsetting – Pension offsetting is a situation where one partner receives a larger portion of other assets, such as property, in return for forgoing their pension entitlement. Again, this option offers a clean financial break, though it can be challenging to calculate exactly how much a pension is worth relative to other assets.
A financial planner can assist you in evaluating the various options for managing your pensions post-divorce, and ensure you get a pension settlement that best serves your long-term financial security.
2. Making property arrangements
If you and your ex-spouse share a home, it is likely that one of you will move out if you divorce.
As with pensions, your property situation is a key component of your overall financial security, so it is important to establish the best solution for you.
Property arrangements can be a complicated and emotive aspect of divorce proceedings, particularly if there are children involved or if you own a house together.
There are a few options for dividing your property. You might decide to:
- Sell the property – This would involve simply selling the property and splitting any proceeds.
- Have one of you buy the other out – In this scenario, one of you would stay in the property and buy the other partner’s portion of the home from them.
- Keep the property – You could decide to keep the property with one partner living there, perhaps until your children leave home, and decide what to do with it in the future.
- Transfer part of the value from one partner to the other – This would mean that one of you might stay in the home, while the other leaves but takes a stake in the property, so when it’s sold, they’d receive a percentage of its value.
After a divorce, some of these arrangements could become quite complex, and determining exactly how much you stand to gain or lose in the long run might be hard to judge.
A financial planner can help you assess your situation to determine what property arrangements you can afford. For example, you may want to understand whether you can take on your home in your own right, or how making full mortgage repayments on your own could impact your future savings and retirement fund.
A financial planner can work with you to align your new property arrangements with your long-term goals and overall financial security, and help to ensure that property division doesn’t impede you from achieving your objectives.
3. Reorganising protection plans
Protection is an integral aspect of financial security, as it can shield you, your family, and your finances in the face of unexpected life disruptions, such as a serious illness.
You and your partner may have taken out joint protection plans, such as life insurance or income protection. If you have taken out a joint policy, some insurers may not allow you to split the cover after a divorce.
Many divorcees cancel their joint policies and then don’t opt for a new individual policy, leaving them and their family underinsured.
There are also additional forms of protection you may need to consider following a divorce. For example, if you agree to pay child maintenance, you might want to explore insurance options that would continue this payment if you were later unable to work due to illness or injury, or if you were to pass away prematurely.
Protection is fundamental to achieving lasting financial security. A financial planner can work with you to understand the appropriate protection for your situation and ensure you have the right cover in place.
Get in touch
If you’re going through a divorce and want further advice on how to achieve financial security on your own, get in touch.
Email admin@stonegatewealth.co.uk or call us on 01785 876222.
Please note
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
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.
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