With the festive season over, the divorce season has begun, heading towards today, 8 January - Divorce Day - where divorce lawyers expect to see a spike in the number of enquiries, according to wealth managemeent firm Hargreaves Lansdown.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, commented: “For anyone embarking on this journey, there’s no nice way to put this: it’s likely to be a rough road ahead, which takes its toll both emotionally and financially. Even with careful planning and a sensible approach, it won’t be comfortable."
Hargreaves Lansdown have identified ten essential steps which can make divorce less financially painful:
1. Emergency budget: It is common to start running up debts after a split as the same income will be divided between two households – while at the same time paying for what can be an expensive process. It therefore makes sense to draw up an emergency budget to cut expenses as much as possible during these first difficult months.
2. Freeze accounts: Banks can freeze the assets in joint accounts, or make arrangements so that both parties have to agree to any money being withdrawn. Similarly they can place controls on debts to prevent either party from abusing joint arrangements. If paid directly into a joint account, arrange for the money to be paid elsewhere, and if there are bills, rent or the mortgage coming out of it, an alternative way of paying these will need to be arranged.
3. Try to agree things between you: There will usually be assets and debts to divide. There may also be children, in which case it will need to be agreed who they live with, access, and maintenance. As soon as lawyers get involved, it can typically amount to over £200 an hour for their services, so the less they do, the less it will cost.
4. Consider mediation: Going through the courts can be a long and expensive process, and there are no guarantees, so it may make sense to employ a professional mediator, who can bring an independent third party to the process at a lower cost.
5. Understand the value of what you have: Couples often offset assets, but it’s important to appreciate the value of what is being given up and what it will cost to replace it. Someone forgoing a pension for the lion’s share of the property, for example, needs to understand what they are trading. It may be worth speaking to a financial adviser as well as a lawyer.
6. Don’t forget pensions: In many cases, it’s one of the largest assets built up during the marriage - often largely in the name of one person. There are a few options as to how to split it: pension sharing divides it into two separate pensions; pension offsetting trades it off against the value of other assets held by the couple; deferred pension sharing (not available in Scotland) arranges to share the pension at a later date; and a pension attachment order (pensions earmarking in Scotland) pays an income or lump sum to the other member of the couple when the pension holder starts taking their pension.
7. Build up your short term savings: Divorce is expensive, so is likely to have eroded cash reserves. An important priority afterwards, therefore, is to build up a lump sum in an instant access savings account or cash ISA to cover emergencies.
8. Review your protection: Think about new protection needs. If you’re paying child maintenance, you may need life insurance to cover payments in the event of your death. Likewise, if you’re receiving spousal maintenance, you may want insurance to cover your ex’s life. You may need to change your nomination of beneficiaries for your pensions and work based death in service benefits.
9. Redo your will: Divorce nullifies any wills, so a new one will need to be made as quickly as possible.
10. Revisit your overall position: After a divorce longer term savings and investments will need to be reviewed. You may well need to rebuild your portfolio or your pension, and rethink your plans for retirement, so the sooner you start, the better.
Ms Coles added: “The potential cost and distress involved in a divorce means in many cases it’s worth considering a prenuptial agreement before you get married. These lay out what will happen to your assets in the event of a split, and can help protect assets brought into the marriage.
This, Ms Coles added, may be particularly important if either of party has children from a former relationship and they want to protect their financial position. "Prenups are not legally binding in the UK, but as long as they are reasonable, properly negotiated, and everyone has been legally represented, the courts are likely to take them into consideration,” Ms Coles concluded.
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