Following on from the strain of national lockdowns, and considering that the most recent ONS divorce statistics showed the number of couples getting divorced/dissolving civil partnerships in England and Wales increased by almost a fifth in 2019, all indications point towards divorce rates increasing over the coming months and years.
Here we look at some of the main financial factors that come into play when considering divorce.
Knowledge is key
It is often the case in a relationship that one party takes a greater responsibility for the household finances. This may be due to skill set, time availability or just the way things happen to have worked out. However, the downside is that one spouse may be less informed about how the household finances actually stack up.
Knowing where you stand financially can make it much easier to get the ball rolling on the financial side of divorce. Even if you are not fully aware of your partner’s financial position, which is not unusual between couples, having up to date information about your own personal finances and those you hold jointly is a good place to start. Where financial advice has always been sought jointly, it may be a good idea to appoint your own financial adviser to assist you going forward.
Look into the future
When caught up in the midst of divorce, it can be difficult to think ahead to what the future will look like. However, you will need to consider how your financial needs may change – as what may be suitable for the here and now may change in 5 or 10 years, or further into the future. The main thing to consider is living costs/your home, along with other essentials such as food, bills etc. In addition, other fixed expenditures such as everyday travel costs, insurance fees etc will need to be accounted for. Where children are a consideration, childcare/school fees and general everyday costs will need to be factored in – again with a view to the future and how these costs may evolve.
Outside of this, the things in life that are non-essential – ie. your discretionary spending – will still need to be paid for. You’re not all of a sudden going to want to stop everything you are accustomed to doing – such as going on holiday, getting your hair cut, activities with friends or family – just because you have divorced your spouse.
Saving for your future and having an ‘emergency fund’ in place are also some of the basics of having a secure financial plan – which may be more difficult to achieve as you come out of a divorce.
Taking everything into consideration can be difficult but seeking the advice of a financial adviser alongside that of a divorce lawyer can go a long way to bringing finances into context for every stage of your life, therefore helping to secure a more favourable outcome during divorce proceedings.
Don’t forget pensions
A recent report (Jan 2021) found that rights regarding pensions are frequently being forgone during financial settlements following divorce. The research from L&G found that more than a quarter of women (28 per cent) would give up pension rights, along with 19 per cent of men. The impact of this can be more significant the older a couple are when they divorce, as pension pots usually become more valuable.
When going through a divorce, people are naturally keen to come to a settlement and move on. But pensions can often make up a significant proportion of an individual’s overall wealth and failing to seek advice on them could have a hugely detrimental impact on finances in later life, and the fairness of any settlement that is reached.
The turbulent impact of the Covid-19 pandemic on factors such as housing, businesses and investments mean that seeking financial advice is more important than ever when looking to settle finances following divorce. Our team regularly work alongside family lawyers to help achieve the best outcomes for their clients. Please get in touch to discuss your own, or your client’s circumstances and how we might be able to help.