Adjusting to your new ‘normal’ is daunting enough following a separation, but when you are also faced with laborious paperwork and difficult decisions to make, it can be physically and emotionally draining, especially if money is tight.
Often, the reason we put off doing tasks is that we don’t know where to begin. So, having a clear and simple process for getting your finances in shape will help to give you the peace of mind and confidence to get back on track and feeling in control.
In this blog, we tackle some of the practical decisions you need to make to protect yourself financially in the event of a divorce or separation. Whether you have been married or in a civil partnership, it’s likely that the same rules apply.
Whilst you may think, or hope, that you will be able to reach a mutual agreement on the split of your assets and finances, we always recommend seeking legal advice. This is to safeguard your rights and to maximise the likelihood of a favourable outcome, especially if you didn’t have a pre-nup or pre-cip agreement in place when you married or entered a civil partnership.
Know your numbers
Start by gathering all of your financial documentation and plot it out with the following column headings. Use this to list what you have under each heading and what the approximate value is of each:
- Bank accounts – joint and personal bank accounts, pensions and investments
- Assets – property, cars, jewellery, furniture and valuable possessions
- Debts – credit cards, loans, mortgages and finance agreements
- Income streams – salary, rental income and any other regular income
- Essential outgoings – utility bills, mortgage payments, insurances and childcare
- Joint subscriptions – streaming services, memberships and rewards
Once you have a full picture of your joint finances, it’s time to think about what it looks like going solo. Creating a new post-divorce budget can be incredibly empowering and will start to inform some of your decisions about what you need from your financial settlement.
If you are unsure of the value of your assets, you can arrange for them to be valued by an independent professional.
Establishing financial independence
Firstly, you need to separate your digital lives. Open your own current account and a savings account in your name only so that you can start to separate your finances and protect your privacy.
Before you close any joint accounts, you need to update direct debit details for bills, utilities and rent/mortgage payments. Remember, if you’re the only adult in your home, you’ll get a 25% discount on your council tax bill, so be sure to update that.
If you have a joint email address, consider closing this account or updating your contact details in any places it has been used. Now is also a great time to review your joint subscriptions and decide if you need them or if you would be better off cancelling them.
For any joint debts, you’ll need to agree on how you’re going to divide them or manage them independently. If you’re worried your ex-partner can’t or won’t pay their share, raise this with your solicitor.
Cleaning up your accounts in this way will give you an outline of your new financial circumstances and a better understanding of how you need to budget.
Don’t forget to change passwords on any accounts or subscriptions your ex-partner has access to at this stage.
Deciding how to split assets
Marriage is a legally binding partnership which recognises two people contributing to building their family home and wealth, even if the contribution wasn’t equal or is shown in different ways. In the case of a separation, assets need to be split fairly to ensure each of you has what you reasonably need to move forward and rebuild your lives independently from each other.
The biggest joint asset is usually the family home, so you and your ex-partner need to decide which one will remain living at that address, assuming that person can afford to keep it. There are also factors to consider, such as how much equity is in the property and where any children will primarily reside.
Try not to rush these decisions, though. It can be quite overwhelming, and you may need to find out your ex-partner’s intentions too.
Pensions are another asset to consider. You might be entitled to a share of your ex-partner’s pension, and they to yours. How you divide a pension can depend on how much it is worth. There are several options for this, but the most common way to share a pension is to move some of your ex-partner’s pension into a scheme of your own. This is known as ‘pension sharing’. If you each have pensions of similar value, you may agree it’s not worthwhile.
If you have an amicable relationship with your ex-partner, you can agree between yourselves on how you split your assets, but we always recommend considering mediation as the first step and seeking legal advice. This ensures that every aspect is considered, as it’s difficult to alter or update a financial settlement when both parties have agreed to it, and it’s been made legally binding.
Mediation
Mediation is commonly used as a future-focused way of helping couples to go through their finances together, make decisions on the split of their assets, and resolve any disagreements constructively.
The mediator may ask you to fill out a financial disclosure form, which declares how much money you’ve got saved or invested (including pensions) and includes incomes and essential outgoings. It’s important that you’re honest about your finances to avoid consequences further through the process.
If a decision cannot be reached between you or with the help of a mediator, then your solicitor can apply for the court to decide. This can have significant cost implications and be a lengthy and stressful process, so we always recommend that mediation is attempted first unless circumstances don’t allow for it, such as if the relationship has broken down due to domestic abuse.
Your solicitor can also help you to fully understand the tax implications of selling assets of high value, such as the family home.
Updating Wills and beneficiaries
One of the most important, and often overlooked, financial steps after divorce is updating your Will and beneficiary nominations. Many people assume divorce automatically removes their ex-partner from everything, but that is not always the case.
The safest option is to make a new Will after your divorce has gone through, to reflect your new circumstances and wishes.
You’ll need to rethink:
- Who should inherit what
- Who should deal with your estate
- Who should care for your children (if you have any)
- How and when money and other assets should pass to them
An updated Will helps protect children’s inheritance, avoid disputes, and ensures assets pass to the right people in the right way, especially if you received property, investments or pensions in the divorce settlement.
Other valuable assets to consider may include nominated beneficiaries from your pensions, life insurance, death-in-service benefits and even investments. These pass according to the beneficiary nominations you have on file, so if this is your ex-partner, they may still receive pension lump sums or insurance payouts even if your Will says otherwise.
We recommend contacting each of your pension providers, insurer and investment platform to update your nominated beneficiary, and make sure this is also reflected in your Will.
How AGR Law can help you
A divorce is life-changing, but it doesn’t have to be to your detriment. By seeking advice from our experienced team, we can support you to make the right choices to protect your financial future.
Call us on 0116 340 0094 or email hello@agrlaw.co.uk to find out more about our services and book an appointment.