Splitting up with a long-term partner can be a heartbreaking, stressful and confusing time.
It’s no surprise, then, that many people neglect their finances when going through the divorce process.
Divorce can have major financial implications which, without careful consideration, could cause hardship in the years and decades that follow. This is why it’s so important for both solicitors and financial planners to be involved in the divorce process.
A financial planner will look at the long-term financial implications of divorce and help to provide clarity around the client’s new future.
Here are three reasons why your clients should speak to a financial planner on divorce.
1. A financial planner can advise on sharing and investing pensions
A divorcing couple’s pensions are sometimes as valuable, if not more valuable, than the family home. Being able to accurately value pensions is therefore vital in ensuring a fair outcome for each party.
Valuing pension assets isn’t as straightforward as clients may think it is. Clients can request the ‘cash equivalent transfer value’ from their pension provider, however, this might not be accurate when it comes to Final Salary schemes. A financial planner can help to ascertain the true value of pensions, so that a fair settlement can be reached.
Financial advice is especially important if the client has been given a pension sharing order. This enables clients to make a clean break by splitting their pension assets and then transferring their credit to a new or existing pension scheme.
A financial planner can arrange the transfer and provide advice on how the pension credit should be invested, based on the client’s new financial situation and goals. Just because certain investments were suitable as a married couple, it doesn’t mean they’re still appropriate now.
Similarly, if the court makes a lump sum order – where one of the divorcing parties is required to pay a lump sum of money to the other – a financial planner can provide advice on how this money should be invested.
By using cashflow modelling tools, a financial planner will be able to forecast the client’s financial future and show how their finances could change following the divorce settlement.
2. A financial planner can arrange the right protection
Something many clients overlook on divorce is their life insurance.
A joint life insurance policy can’t be divided unless it offers separation benefits. There are generally two options: the joint cover is cancelled and each individual takes out a new single life insurance policy; or one party signs over the joint life policy to the other.
A financial planner can explain the implications of each option. For example, if the policy is signed over to one party, they must be able to keep up the repayments to maintain cover. And if the policy is cancelled, new cover could be more expensive.
Even if the couple has two single life insurance policies, there are still things to think about. The client might need a different level of cover and may want to change their beneficiary if it’s currently listed as their ex-partner.
If one party has agreed to pay regular maintenance payments to their ex-spouse, life insurance can be set up on a ‘life of another’ basis, so that the policy proceeds are paid to the ex-spouse if the payee dies. This can be set up as a lump sum or as Family Income Benefit, which provides regular, monthly payments.
A financial planner can advise on the right type of protection to ensure the client is protected against financial shocks.
3. A financial planner can provide advice on the family home
One of the biggest decisions for divorcees is what to do with the family home. This is especially important if they have children.
Couples with a joint mortgage often want to rearrange things so that only one partner has their name on the mortgage. Whether or not this is possible depends on each party’s financial circumstances.
A financial planner can take a holistic look at the client’s finances to determine whether they can afford to buy out their ex-partner and keep up with the mortgage payments on their own.
If the client can’t afford to take over the mortgage, some options to consider include switching to an interest-only mortgage or taking out a ‘guarantor mortgage’, where a close friend or relative agrees to guarantee the mortgage payments. Both types of mortgage have potential drawbacks, so it’s vital the client seeks financial advice.
Couples without children might agree to sell their home and repay the mortgage, leaving them both free to move on and buy their own individual properties. A financial planner can advise on how much money the client is likely to be able to borrow, bearing in mind their new financial circumstances.
Get in touch
At Ardent, we can help clients who are thinking of divorcing, already going through the divorce process, or are divorced and looking for help with their new financial situation.
Our specialist service is led by Gary O’Brien, who is one of only a small number of independent financial advisers in the UK to be accredited by Resolution, the organisation of family lawyers committed to non-confrontational divorce.
Gary can help clients understand the value of their assets, including their property, investments and pension funds. He provides advice on the most effective ways of sharing assets and helps clients restructure their finances, so they can move on with their lives and look to the future with confidence.
For more information on how we can help your clients through the divorce process, please get in touch. Email email@example.com or call 01904 655330.