4 April 2022
In 2020, there were 103,5921 divorces granted in England and Wales and with no fault divorce coming into force on 6 April, couples will be able to get divorced without one person needing to blame the other.
This new legislation could help to reduce conflict between couples, allowing them to focus on important issues like children, property and finances.
Menna Cule, financial planner at wealth manager Brewin Dolphin said “No fault divorce could help make the difficult process more amicable, however ending a marriage and managing a divorce is complex and you must not underestimate the importance of taking legal and financial advice to ensure both parties are protected for the future.”
“Whilst short-term financial security and practical issues like child-care and property are top priorities, long-term finances and pensions must be properly considered and valued.”
“The new no fault divorce legislation will hopefully help reduce the emotional stress of a divorce and with some smart advice as well, the financial impact can also be minimised, and your future income needs protected.”
Menna’s top tips to manage your finances in a divorce:
1. Seek advice immediately
Put money aside to seek legal and separate financial advice immediately. Then, when you are ready to visit your solicitor, a financial adviser can help you draw up a list of joint and personal assets and valuations, so any advice you seek is based on accurate information. And this can make the appointment with the solicitor more time and cost effective.
Draw up a list of assets e.g. first or second homes, pension pots, investments, value of any businesses etc., when they were purchased and find out if they should fall into the category of marital assets, as well as a list of all your outgoings both joint and individually. A financial adviser will then be able to look under the bonnet of your financial situation more forensically and give more accurate advice.
2. Separate yourself financially
Cancel any financial commitments that might be in a joint name. Cancel credit cards, joint accounts, personal loans and even overdrafts if possible and set up afresh in your own name.
3. Timing is everything
Although it may be the last thing on your mind, choosing the right time of year to divorce could significantly impact on the financial outcome for each individual.
From the point of separation, couples have until the start of the new financial year on 5April 2023 to transfer assets between one another without incurring Capital Gains Tax. This includes the split of gain on investment portfolios and jointly-owned properties. Starting earlier in the tax year will give you more time to complete the transfer process and can relieve some of the pressure from the situation.
4. Splitting pensions
What can be divided depends on where in the UK you are divorcing. In England, Wales and Northern Ireland the total value of the pensions you have each built up is taken into account, excluding the basic state pension.
In Scotland, only the value of the pensions you have both built up during your marriage or civil partnership is considered. Normally, anything built up before you married or after your ‘date of separation’ does not count.2
There are two main ways of dealing with pensions at divorce that apply across the UK.
1. Pension sharing is often the favoured way of dividing a retirement fund because it achieves a ‘clean break’. This involves couples splitting one or more pensions. The aim is to ensure that the future incomes of both spouses are equalised. A specialist wealth manager will be able to help you implement any pension sharing order after the splitting process is complete.
2. The second option, pension offsetting, sees pension rights balanced against other assets, such as the home. Typically, if one spouse has a pension fund worth £500,000 and the couple jointly own a property worth £500,000, one may keep the property and the other keep the pension – though things are rarely that simple, so professional advice is key.
5. Budget for your future
Whatever happens, your life is going to be very different once the divorce is complete so it’s important to budget for the future life you want to live. Most people know when a relationship is coming to an end, so start saving and planning for when the moment comes because what you want financially from the divorce might not be what you get. This is especially important for the partner who may have been more financially submissive in the relationship and doesn’t have a realistic understanding of what outgoings might be.
Obtaining a copy of your credit report is a good start, so you know what your standing is, especially as many people will need to think about a new mortgage after divorce. A credit report will also highlight any joint lending you might be liable for.
Consequently, you may want to take another look at your investments, ask for help implementing a pension sharing order or review other financial issues to make the most of your changed circumstances.
Menna concludes, “A financial expert can be invaluable in guiding you through the myriad of financial decisions from valuing and splitting pensions, financial disclosure, income planning, valuing investments, managing tax and implementing court decisions to get your finances back on a sound footing.”
Disclaimers
The value of investments can fall and you may get back less than you invested., Tax treatment depends on the individual circumstances of each client and may be subject to change in the future., Information is provided only as an example and is not a recommendation to pursue a particular strategy., Information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.
PRESS INFORMATION
For further information, please contact:
Richard Janes richard.janes@brewin.co.uk / Tel: +44 (0) 20 3201 3343
Siân Robertson Sian.Robertson@brewin.co.uk / Tel: +44 (0) 20 3201 3026
Payal Nair payal.nair@brewin.co.uk / Tel: +44 (0) 20 3201 3342
NOTES TO EDITORS
About Brewin Dolphin
Brewin Dolphin is a UK FTSE 250 provider of discretionary wealth management. With £59.0* billion in total funds, we offer award-winning, personalised wealth management services that meet the varied needs of our clients including individuals, charities and corporates.
Our services range from bespoke, discretionary investment management to retirement planning and tax-efficient investing. Our focus on discretionary investment management has led to significant growth in client funds and we now manage £52.0* billion on a discretionary basis.
Our intermediary business manages £19.0* billion of assets for over 1,700 advice firms either on a discretionary basis or via our Managed Portfolio Service, the MI Brewin Dolphin Voyager fund range and Sustainable MPS.
In line with the premium we place on personal relationships, we’ve built a network of 33 offices across the UK, Jersey and Republic of Ireland, staffed by qualified investment managers and financial planners. We are committed to the most exacting standards of client service, with long-term thinking and absolute focus on our clients’ needs at the core.
For more information, visit: www.brewin.co.uk
*as at 31st December 2021.
Brewin Dolphin is authorised and regulated by the FCA (Financial Services Register reference number 124444)
2The Money Advice Service: Dividing business interests on divorce or dissolution.