Navigating No-Fault Divorce
No one enters into marriage expecting it to end in divorce, but for many couples, it's a sad reality.
If you or someone you know is facing divorce, it's important to know that you are not alone. With the introduction of no-fault divorce in England and Wales, the process has become less adversarial, but that doesn't mean it's easy.
In this blog, we'll take a look at some of the key things to consider when navigating the no-fault divorce process, from seeking professional advice to timing your divorce for maximum financial benefit.
Seek Professional Advice
The first step in any divorce process is to seek legal and financial planning advice.
A professional financial planner can help you draw up a list of joint and personal assets and valuations, which will make your appointment with your solicitor more time and cost-effective.
It's important to have accurate information so that any legal advice you receive is based on your specific circumstances.
Cancel Shared Finances
As soon as possible, cancel any financial commitments that might be in a joint name. This includes credit cards, joint accounts, personal loans, and even overdrafts if possible.
Unfortuantely, an unscrupulous partner could take advantage of the situation and saddle you with debt that you could become liable for.
So, it's important to set up afresh in your own name.
Timing is Everything
When it comes to divorce, timing is everything.
Although it may be the last thing on your mind, choosing the right time of year to divorce could significantly impact the financial outcome for each individual.
For example, tax considerations may come into play, and there is a window of time where a spousal exemption applies and then drops off.
For example, if you and your spouse were living together at some point during the tax year, you can continue to transfer assets as part of the spousal exemption at any time during the tax year, with no requirement that you both be living together at the time of the transfer. However, the spousal exemption doesn't apply after this tax year.
When it comes to pensions, finding a way to achieve a clean break so that you are not tethered to your partner forever is key.
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 registered civil partnership is considered.
Normally, anything built up after your date of separation does not count.
There are two main ways of dealing with pensions at divorce that apply across the UK.
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.
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. However, 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.
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.
Be Fair and Realistic
It is vital to negotiate a fair financial settlement during the divorce process.
Keeping a level head and being fair and realistic will help ensure that both parties are satisfied with the outcome.
Divorce is never easy, but with the introduction of no-fault divorce, the process has become less adversarial.
Obtaining professional financial planning advice can be invaluable in guiding you through the myriad financial decisions that come with divorce, from valuing and splitting pensions, financial disclosure and income planning, to valuing investments, managing tax and implementing court decisions to get your finances back on a sound footing.
Remember, you are not alone, and with the right mindset and approach, you can come out the other side in a better place.
For a more detailed discussion on this topic, please feel free to contact us. Our team are always available to answer your questions and to help you with any of your financial planning needs. Here’s what we offer: A cup of coffee… and a second opinion.
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