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Divorce and Financial Planning – what you should know.
If you’re considering filing for divorce, it might feel daunting or difficult to determine what will happen to your finances. From what assets you can keep to what you have to split, it’s a process that no one wants to go through.
So to help guide you in the right direction, we’ve rounded up useful divorce and financial planning information.
What Does Financial Planning Mean?
With a divorce comes an inevitable effect on your finances. Financial planning helps you by determining what effect divorce could have on your finances in the future, as well as how they currently stand before the proceedings are in place.
Focusing on developing the best strategy for you to take, by looking into your personal financial situation a financial advisor will use their extensive knowledge and experience to help guide you in the direction that’s best for you. Advising you about all of your options, it will save you time and money.
And whilst there are online calculators that you can use to see what your financial situation would be like proceeding a settlement, it’s more beneficial to hire an expert professional who will take an outside look at the situation and offer you guidance throughout this difficult time.
Determining the true value of your assets, it prevents any mistakes from being made throughout the process. Working with you from start to finish, through financial planning, you’ll have a strategic plan that helps to ease the financial pressure that you may be feeling.
Although financial planning is primarily concerned with assessing your finances now and in the future, it will also take into account what happens to your family home, child maintenance and any pensions that you have.
What Does The Typical Process Look Like?
Even though everyone’s financial planning journey is unique to them and will depend on several factors, there is a typical process that you can expect. This includes the following steps:
Assess Your Financial Information
An expert financial advisor will advise you to gather as much information as possible regarding your marital assets.
This information can be used to complete an in-depth assessment and analysis of your finances. This will be used to create your overall strategy and to ensure that you achieve the best possible outcome.
As part of this, a budgeting and cash flow analysis will be carried out, which will help you to understand what your finances will look like post-divorce.
Analysing Your Options
At this stage, your financial advisor will assist you by analysing what settlement options are available to you. Although assets are typically split 50/50, there are cases in which one party gets a larger share than the other.
No matter what your financial circumstance, they will guide you to understand what assets you’re able to keep and if you want to take ownership of particular assets, how it will affect your settlement agreement.
As part of the process, your financial advisor will help to ensure that your assets are protected and that appropriate risk management is used in case any unforeseen events take place throughout the proceedings; for example, in the case of child support being lost due to death or accident.
Arrangement of legal documents
During this step, your financial advisor will ensure that all of your legal documents (from your wills to the ownership of the family property) reflect both of your post-divorce directions.
A Strategic Plan is Created
After your financial assets have been reviewed, a strategic plan will be created with what you will require and need to live your lifestyle. Aligning with your personal objectives, it can be used to showcase to the court what your wishes are for life post-divorce.
The majority of couples who are going through a divorce will have a financial settlement that satisfies both of them. Especially when they use the expertise and guidance of legal advisers.
However, to make it legally binding, this settlement must be agreed by the Court.
Key Documents to Sign During The Financial Settlement
After meeting with your financial advisor, you must complete Form A which starts off the process of the financial settlement. This form is an application that acts as a financial order in the process.
An appointment date will then be set in which the judge determines what further information is needed to create the settlement before each of you fill out a financial statement (Form E).
Any costs incurred by the proceedings are then declared (by filling out Form H) before you meet with the judge to discuss what assets both parties can keep.
How Do You Value Assets?
In the UK, when it comes to what assets you can keep, as mentioned above the starting point is usually the division of these assets in a 50/50 split. However, that’s not always the case.
The split of the marital assets will depend on your individual circumstances. In Court during the proceedings, it will take into account the Matrimonial Causes Act (1973) or the Civil Partnership Act (2004). Aligning with these acts, they will consider the following when dividing assets:
- Current and future income and earning capacity of both parties (including income received from properties).
- The current standard of living of both parties.
- Financial obligations, responsibilities and needs currently and in the future.
- The age of each person.
- The duration of the marriage.
- Whether either party has a physical or mental disability.
- The conduct of each party.
- Any contributions each party has made now or in the future that affects the welfare of the family.
- Which specific assets either party would lose due to the divorce, such as a pension.
The monetary value your assets are given typically align with what they would achieve if you were to sell them. This fair market value will be determined at the start of the process.
More complicated assets to value such as property or pensions will require professional help to determine.
Keep in mind that many couples will agree to a financial settlement. When they do this, they sign a consent order that’s required to make it legally binding.
If you are planning on a divorce or separation, or just generally want to ensure your money is working its hardest for you please get in touch to see how we can help you. You can also find out more about divorce & financial planning on the Pensions & Investments Podcast.
The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.
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