The end of the summer holidays is a well-known flashpoint for couples to finally decide to divorce, second only to that other pressure cooker period of Christmas. The financial implications are of course serious, but you can ensure better outcomes if you take a pragmatic and proactive approach. Here, Hazel Bowen, Chartered Financial Planner at Canaccord Genuity Wealth Management, explains key wealth considerations around divorce.
The good news is that divorce is now at its lowest rate in the UK since 1971. Statistics from the ONS state that the divorce rate for couples now stands a 6.7 for men and 6.6 for women per 1000 of the married population. This was from peak divorce back in the early 1990s. Roughly speaking about 42% of British marriages and single sex unions end up with the lawyers.
Of course, no one wants to walk down the aisle with the thought that it’s going to end in a divorce. Divorces aren’t pleasant – it’s an incredibly stressful, gut-wrenching time, particularly if there are children involved.
And for partners who are less ‘hands on’ in terms of finances, it can make them feel helpless and vulnerable. This is why it’s vital to seek some expert financial help (as well as legal), from the outset, to ensure both spouses understand the financial implications when it comes to splitting up.
What’s mine is yours
In sharing cases it is possible to identify ‘non-matrimonial assets’ (for example, they might be inherited assets that were not acquired owing to endeavours of the marriage) and ringfence these assets, so they do not form part of the financial negotiationsIt would be wise to take collaborative financial and legal advice to figure out what your needs are and help you understand the right approach for your circumstances. The position in Scotland it is different as only matrimonial assets are considered the starting point. The practical application of this rule is complex and, in some cases, an asset that one spouse has identified as non-matrimonial can be successfully challenged by the other spouse to be included in the financial negotiations.
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Key factors to bear in mind
Understand your needs:
Secure your retirement:
Although the average age for divorce is 42 for women and 45 for men, more people divorce in their 50s than any other demographic. There is a worry that people – particularly women – will struggle financially in retirement following a divorce. Pensions research shows the median wealth of a divorced man is £103,500 (the average man’s is £156,500) compared to the median pension wealth of a divorced woman which is £26,100. Pensions are often the most valuable marital asset after the family home and it is extremely complex to value and compare them fairly, yet many people overlook the importance of taking expert pensions advice during divorce. It is vital that you do this to avoid financial hardship in later life.
Pensions are often the most valuable marital asset after the family home and it is extremely complex to value and compare them fairly, yet many people overlook the importance of taking expert pensions advice during divorce
Planning and investment combo:
Divorce can be difficult, painful and sorrowful. To call time on a union you entered into full of optimism and hope can feel like a failure. But it’s important that you are pragmatic, practical and proactive and that you get the right advice, so you get the right outcome for you. Best foot forward will give you the best chance of securing the future you deserve.
To call time on a union you entered into full of optimism and hope can feel like a failure. But it’s important that you are pragmatic, practical and proactive and that you get the right advice, so you get the right outcome for you
Case study: Helen
Helen, 50, a mother of twins who were both at university, was halfway through a very acrimonious divorce when her lawyer suggested she needed some financial advice. The family wealth comprised their £2.5 million house (with mortgage of £250,000), her husband’s SIPP (£1.2 million) and an ISA each of £250,000 and £450,000 in a dealing account. Helen was awarded half the assets in the divorce and wanted help to maximise these assets and safeguard her long-term future.
We came up with a plan of £48,000 income a year – which would reduce when the twins graduated. And agreed she was a medium-risk investor, who wanted a steady investment income. She got a house for £850,000, leaving her with £275,000 from the sale of the family home which was added to her half of the dealing account. We set up a new SIPP with the £500,000 added from her husband’s SIPP. So now Helen has a SIPP of £500,000, an ISA of £250,000, a dealing account of £500,000 and a flat with no mortgage.
We decided to combine income generation from her dealing account and her tax-free ISA, returning a gross yield of 4.5% or £33,750 (which is higher than the ‘rule of thumb’ 4%). Every April we move funds from Helen’s dealing account to the ISA, to increase the tax-free funds. The SIPP is essentially a long-term saving vehicle, which Helen has earmarked as an inheritance tax exempt pot for the twins. Helen is now two years down the road, her income needs have been met, supplemented by periodic cash withdrawals. Regular meetings with her planner and investment manager means she now stays on top of all her finances.
Important information
The investment strategy and financial planning explanations of this piece are for informational purposes only, may represent only one view, and are not intended in any way as financial or investment advice. Any comment on specific securities should not be interpreted as investment research or advice, solicitation or recommendations to buy or sell a particular security.
We always advise consultation with a professional before making any investment and financial planning decisions.
Always remember that investing involves risk and the value of investments may fall as well as rise. Past performance should not be seen as a guarantee of future returns.
