The emotional toll of divorce is immense, and the financial consequences can be just as daunting. Without expert guidance, costly mistakes are easily made. A financial planner provides the knowledge and support needed to help you transition to the next chapter of your life with financial security and peace of mind.
It’s a sad fact that around 42% of marriages in the UK end in divorce. In 2022, more than 80,000 divorces were recorded in England and Wales. Although that number is lower than it was a few years ago, divorce is far more common today than it was in the 1960s.
It is, however, no less stressful. The Holmes and Rahe Stress Scale, developed in 1967 by psychiatrists Thomas Holmes and Richard Rahe, ranks divorce as one the second most stressful life event after the death of a spouse — substantially more stressful than imprisonment, a major personal accident or illness, or losing your job.
There are several reasons why. There’s the emotional turmoil it causes, the feelings of isolation resulting from changing social dynamics, and, for those with children, the challenge of navigating co-parenting arrangements and managing concerns about their children’s wellbeing.
Six financial challenges divorce poses
As if all of that isn’t more than enough to contend with, the financial implications of divorce can seem just as overwhelming. Here are six of the most significant ones:
Legal costs
The expenses associated with divorce proceedings can accumulate quickly. These costs encompass court fees, legal representation, mediation and, in complex cases, financial experts to assess assets and liabilities. Uncontested divorces can cost up to £2,000, and legal fees for contested divorces can exceed £30,000.
Division of assets
Determining a fair distribution of marital assets is often the most contentious aspect of a marriage break-up. This process requires full disclosure of all individual and joint finances, including property, pensions, savings and investments. Although the starting point is a 50/50 split, the court has the final say in all settlements, and what you think is fair may not be what the court decides.
Impact on income
Transitioning from a dual-income household to a single-income situation can lead to financial strain. Individuals may face challenges in maintaining their standard of living, covering living expenses and managing debts independently. This shift often necessitates adjustments in budgeting and lifestyle.
Impact on retirement
Pensions are a significant yet sometimes overlooked asset in divorce settlements. Failing to give pension arrangements the attention they warrant can result in financial hardship for at least one of the parties in the future. Options include pension sharing orders, which allow a pension to be split at the time of divorce, providing each party with their own pension pot.
Housing and living arrangements
Deciding who retains the family home or whether it should be sold can have substantial financial implications. Both parties need to assess their ability to afford new living arrangements, including mortgage payments or rent, utilities and maintenance costs. This consideration is vital for long-term financial stability.
Tax implications
Divorce can lead to a range of tax-related consequences, such as capital gains tax on the transfer of assets and changes in income tax status. Tax rules and how to interpret them can be very complex, and mistakes can lead to substantial and avoidable tax liabilities.
The older you are, the tougher divorce is
All of these challenges can be daunting for divorcing couples of any age. But from a financial perspective, divorce is generally more problematic the older you are.
Data from the Office for National Statistics shows that the number of so-called “silver splitters” — couples divorcing over the age of 60 — doubled between 1993 and 2019. Contributing factors include increased life expectancy, greater financial autonomy among women and a reduction in the stigma associated with divorce.
It’s relatively simple for younger couples to split what wealth they have and make a new start, but older divorcees have less time to rebuild their finances. Because their assets are more substantial, it can be much more difficult for older couples to reach an equitable agreement. Also, older divorcees tend to be more emotionally attached to their financial assets, particularly their home.
The risks of failing to take advice
Given all these challenges and the complexities involved, it’s vital that divorcing couples seek professional advice. But, in a recent survey of UK adults for Legal & General, only 7% of respondents said they had sought financial advice during the divorce process.
A large proportion of those people who hadn’t taken professional advice said they were so concerned about the financial implications of breaking up that they had decided to delay the divorce process and stay in an unhappy marriage.
The L&G research also highlighted how failing to consult a financial adviser when a marriage breaks down can leave you vulnerable to making mistakes that could have serious long-term consequences. Here are three examples:
Waiving your rights to pensions
The survey showed that just 13% of people going through a divorce consider pensions when dividing assets with their partners and 23% actively waive their rights to the value of either their pension or their partner’s pension. This can make a huge difference later in life, especially if one partner stayed at home to focus on childcare, leaving them with a smaller retirement pot.
Leaving yourself open to future claims
A common misconception is that a divorce automatically severs financial ties between the two parties: without what’s called a Clean Break Order, it doesn’t. Just 31% of divorcees surveyed for the L&G study had signed CBOs. That means the remaining 69% face the risk of future financial claims from their former spouse, years or even decades after their divorce was finalised.
Forgetting to update your will
11% of those surveyed had either delayed or forgotten to remove their ex-partner from their will, risking unintended inheritance disputes. A similar proportion had forgotten to remove their former spouse as the beneficiary to their pension or life insurance.
The benefits of hiring a professional
One of the main benefits, therefore, of seeking professional financial advice during a divorce, is that it minimises the risk of making these sorts of mistakes. People have a great deal on their minds when going through a marriage break-up, and it’s easy to overlook something that may be important. An experienced professional adviser will help to ensure that doesn’t happen.
For Steven Williams, Chartered Financial Planner at rockwealth Brighton, another advantage of hiring a professional from the outset, to manage the financial aspects of a divorce is that it provides much-needed objectivity.
“Divorce can be an emotionally charged time, and a financial planner provides impartial, expert advice to help you make rational financial decisions.
“Nobody wins from a confrontational approach during a divorce, apart from lawyers. It doesn’t make sense for either party to give away large chunks of their hard-earned savings to expensive solicitors.
‘I help clients to embark on a collaborative approach that not only supports their emotional wellbeing but protects their financial position as well.”
In order to reduce the legal expense his clients incur in a divorce, Steven encourages them to use a service called Amicable, which helps divorcing couples navigate the process of separation in a more peaceful and constructive way.
“Amicable is a really valuable service,” says Steven. “It provides a platform for couples to work through their divorce or separation without resorting to court, by facilitating better communication and offering expert support. The focus is on amicable resolutions that prioritise the well-being of all parties, including children.
“Also, because it’s an online platform, it allows couples to work through the process in their own time and from the comfort of their homes. This flexibility makes it an accessible and less stressful option than a traditional mediation service.”
Planning your next chapter
As we’ve seen, there’s a wide range of financial factors to consider during a divorce. But the financial consequences of a a marriage break-up don’t end when the divorce comes through. That’s why it makes sense to maintain an ongoing working relationship with your adviser.
“Post-divorce, your financial situation will change,” says Steven Williams. “A financial planner can help you rebuild your financial security. That means creating a realistic budget, accounting for changes in income, expenses and potential adjustments in lifestyle. It also means ensuring that you’re still on track to meet your long-term goals for retirement.
Of course, nobody enjoys getting divorced. It will never be a pain- or stress-free experience. But Steven sees it as part of his role as a financial planner to help divorcees plan for a more contented future.
“People don’t take the decision to get divorced lightly. Often they’ve been unhappy for a long time. Painful though it is, divorce offers you the chance to start a new chapter in your life.
“It can’t be hurried, but it’s really important, after a divorce, to reassess your personal values and what it is that’s truly important for you. A good financial planner can help you plan what you want to do with the rest of your life, and help you to make realistic, positive decisions about the future.
“They can then put that into a financial plan which gives you clarity, and also the peace of mind that comes with knowing that, whatever else life might have in store, you will always have enough money to do what you want to do.”
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If you’re going through a divorce and haven’t yet consulted a financial adviser, we can help. Give us a call, send us an email or simply complete our contact form, and we’ll arrange a meeting.
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