Dealing with divorce: financial planning tips

News & comments

3 January 2024

After the intensity of the festive period with some couples holding it together for the sake of the family, Divorce Day, or D Day as it’s become known, looms ominously on 8th January 2024 – the first working Monday in January, with the New Year being the most popular time of year for couples to start divorce proceedings.

It goes without saying that divorce can be an incredibly stressful and testing time, yet at a time when emotions are heighted, important decisions need to be made. Keeping a level head to negotiate a fair financial settlement is vital.

Menna Cule, financial planner at wealth manager RBC Brewin Dolphin says, “Managing a divorce can be both emotionally and physically draining but with some smart advice at least the financial impact can be minimised, and future income needs protected.

“If you and your spouse can agree on what is a fair split, possibly with the help of a financial mediator, expensive legal bills and court proceedings may be avoided. However, sometimes there is no alternative and the court will need to intervene.”

If you find yourself in this situation, here are Menna’s top five tips to take control and ensure a fair deal:

Seek advice immediately

You need to firmly know what outcome you are seeking to achieve. 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.

Cancel shared finances

Cancel any financial commitments that might be in a joint name immediately. The more unscrupulous partner could take advantage otherwise and saddle you with debt you are liable for. So, cancel credit cards, joint accounts, personal loans and even overdrafts if possible and set up afresh in your own name. However, don’t cancel protection policies until you have reviewed them properly, to ensure you don’t get left without valuable cover for debts and children etc.

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 6 April 2024 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 would give you more time to complete the transfer process and can relieve some of the pressure from the situation. Therefore, couples may want to consider whether they really want to begin the process in January, with just a few months of the financial year remaining – although, again, taking advice as soon as possible may mean you’re able to straddle two years’ allowances.

Splitting pensions

When it comes to pensions, finding a way to achieve a clean break so you are not tethered to your partner forever may seem preferable, but make sure you’re not financially disadvantaging yourself by doing so.

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.

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.

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.”

– ENDS –

Disclaimers

The value of investments can fall and you may get back less than you invested. This does not constitute tax or legal advice. 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. RBC Brewin Dolphin is a trading name of Brewin Dolphin Limited. Brewin Dolphin Limited is authorised and regulated by the Financial Conduct Authority (Financial Services Register reference number 124444) and regulated in Jersey by the Financial Services Commission. Registered Office: 12 Smithfield Street, London, EC1A 9BD. Registered in England and Wales company number: 2135876. VAT number: GB 365 3456 40.

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 RBC Brewin Dolphin

RBC Brewin Dolphin is one of the UK and Ireland’s leading wealth managers and traces its origins back to 1762. With £51.8* billion in assets under management, we offer award-winning, personalised wealth management services from bespoke, discretionary investment management to retirement planning and tax-efficient investing.

Our qualified investment managers and financial planners are based in 33 offices across the UK, Jersey and Republic of Ireland. They are committed to the most exacting standards of client service, with long-term thinking and absolute focus on our clients’ needs at the core.

As part of Royal Bank of Canada (RBC), we are now able to draw on the strength of a global financial institution to continue to improve the service we provide to our clients and drive further innovation across our business.

*as at 31st October 2023.

About RBC

Royal Bank of Canada is a global financial institution with a purpose-driven, principles-led approach to delivering leading performance. Our success comes from the 94,000+ employees who leverage their imaginations and insights to bring our vision, values and strategy to life so we can help our clients thrive and communities prosper. As Canada’s biggest bank and one of the largest in the world, based on market capitalization, we have a diversified business model with a focus on innovation and providing exceptional experiences to our more than 17 million clients in Canada, the U.S. and 27 other countries. Learn more at rbc.com.

We are proud to support a broad range of community initiatives through donations, community investments and employee volunteer activities. See how at rbc.com/community-social-impact.


The value of investments and any income from them can fall and you may get back less than you invested.