Divorce is horrible but increasingly common in the western world with a common statistic being that one in three marriages now ends in divorce, and the peak time for submission of divorce petitions is January. This may be due to the added stress of the festive period, visits from in-laws and money worries, or simply the need for a fresh start in the New Year.
Whatever the reason, there are many things that you should consider if you find yourself ‘going it alone’ for whatever reason, to ensure that your financial future is secure and that you have things in place moving forward. Having been there myself (twice – it’s a long story) I can say that regardless of how amicable the breakup, there can still be financial matters to untangle for months, or years afterwards and you have several things to consider.
Firstly, you need to know if your sole income will be enough to cover the housing and bills for you and any children that you have. Completing a budget planner is the easiest way to do this, and if you don’t have one you can download one for free from here.
If you have children, the expectation is now that you decide between the two of you the amount of maintenance income the ‘resident parent’ should receive from the other, and only look to go to the CSA or to court if you can’t come to a suitable arrangement. A good starting point is the CSA calculator which is based on income, number of children and nights overnight with the absent parent – this is just an indicator and it may be that due to your standard of living a higher (or lower) sum is more appropriate.
Up until your decree absolute comes through, you are still legally married even if you have been apart or separated for many years. This means your spouse will still inherit at least the first £250k of your estate if you die, unless you have written a Will to leave your estate to someone else. A Will should be written by a solicitor or licenced Will writer if at all possible to avoid being challenged later and your Financial Adviser should be able to recommend a suitably qualified person to you.
You will need to choose people to be executors of your estate (to follow your wishes after you are gone), and nominate the beneficiaries who will receive your estate however large or small this may be.
This is even more important if you decide not to divorce (or never quite get round to it) and many years later you share a house with a new partner who may then find themselves on your death with no claim to the place that they call home.
Did you know that many older pensions, including employer and final salary schemes, have a death in service benefit and/or a widow’s pension built in? If you would rather this not go to your (now) ex then you should contact the pension provider to complete a new nomination form in favour of your children, executor or another person of your choice. If you do not do this, there is every chance that on your death the money will be offered to your ex as the named beneficiary, ahead of any new partner (or children). The widows pension if you are unmarried (or divorced) in most cases cannot be paid to anyone else which means in effect your pension pot dies with you – this has caused many people to speak to a financial adviser about their options, which in some cases may involve transferring their pot to a more modern scheme, allowing flexibility as to who the money goes to and in effect eliminating the risk of losing their retirement savings.
In the same way, you may wish to speak to your financial adviser to check who would receive the payout from any life assurance that you have, as you may need help to ensure that the right people get the money on your death.
If one of you has given up a career to be at home, with or without children, you may be entitled to part of the pension that the working partner accumulated during the time that you were together. This is usually achieved by completing a pension sharing order as part of your divorce paperwork, and results in some of the fund being transferred into a pension pot in the other person’s name – you cannot just take the money out of it as cash. It may be possible to avoid this if there are other assets that can be given instead, this may be savings/investments or an increased share in the marital home.
In the simplest situation, and usually when there are no children involved, the house can be sold and the proceeds (after repayment of any mortgage) can be split in whatever proportions you agree, but in many cases you might look to do something different.
Depending on income levels, it may be possible for one of you to buy the other person’s share, either from savings or by raising a mortgage on the property and transfer the ownership into one name. This allows you to have a clean break and gives one party cash for a fresh start and /or a deposit on their own new property.
You may choose to transfer the home from a ‘joint tenants’ to a ‘tenants in common’ basis, so that effectively you each own a defined share and then keep the property as an investment. This would mean that at some point in the future when the property is sold, the proceeds are then divided and some couples choose to do this, especially if one of them is moving in with a new partner. This also often happens when one person ‘on paper’ cannot afford to take over the mortgage or does not qualify for borrowing, although in practice they can meet the payments each month, which may be due to their income being made up of earnings, benefits and maintenance (especially if they have children). If you choose this route the other person will still be entitled to their share of the property when it is sold (30%, 50% or whatever) even if the property goes up considerably in value which can make it harder to raise the funds to buy them out and is more likely to eventually lead to the property being sold. This can be done by downloading a form from the land registry (which is free) plus completing either a deed of trust or witnessed separation agreement explain the proportions in which the asset is to be distributed. This is not necessary if it is dealt with in the court order associated with the divorce, usually called a ‘consent order’ as this document in itself is legally binding.
In families with children, in many cases the home is not sold until the youngest reaches the age of 18 and it may be some years before the money can be released and distributed in whichever proportions you, or the court, have decided. It may be possible to negotiate a larger share of the home in lieu of sharing a pension pot or other savings, but this should be obtained in writing, preferably via a consent order stamped by a court.
Taking professional advice
You will probably discuss your situation with your friends and family, and a lot of help and information can be found online these days but that is no substitution to getting proper advice.
Most solicitors will offer a single low cost consultation (around £100) where you can discuss your options and next steps and I would suggest that this is a good use of your money, even if you then choose to submit your own divorce petition. They can give you an indication of what rights and choices you have, and help you understand what would be a reasonable outcome.
You should speak to your financial adviser and explain that your circumstances have changed and they can help you put the right things in place to protect your future. They can ensure that you are not missing out on valuable allowances, which when lost are gone forever and help you to see a way forward that makes sense.
Remember that your adviser has their own story and life experiences and will have helped many people in your situation by producing a calm, confident solution whilst being a friendly ear.