5 financial steps your clients should take during a divorce, and how professionals can help

Divorce is an often stressful and emotionally draining experience, meaning divorcing clients can be in a rush to finalise their separation and see the process through.

While this is understandable, it can also mean that certain elements of the process may be hurried or overlooked. This can lead to complications further down the line or may mean that one party is left in a relatively worse position than the other.

As such, it’s important for divorcing clients to work with a financial planner as well as a solicitor during the proceedings. Indeed, divorce is an event that is often best served by ongoing coordination between the two professions.

Read on to discover five financial steps your clients should take during a divorce, and how financial planners and solicitors can help.

1. Divide joint and individual assets

An important step to take early in the proceedings is for the clients to divide their assets into jointly held and individual assets.

For many assets, this will be simple, but there are some that may require particular attention. For instance, they may:

• Jointly manage a business
• Share a significant investment portfolio
• Have a shared account with significant sums of money
• Own a house together (more on this later).

In these instances, the divorcing couple will need to make important financial decisions that will require the assistance and support of expert advisers.

A financial planner can help clients understand the value of their assets and how it may change over time. They can model the long-term impact of different asset-splitting options to demonstrate how various settlements could play out.

Meanwhile, a solicitor can advise on the legal aspects of dividing jointly owned assets, oversee the formal transfer from one party to another, and ensure any agreements are legally binding.

2. Assess their financial needs

Divorcing clients will need to assess their budgets and financial needs, as their income and expenditure may alter significantly after they split.

They need to ensure their finances are sufficient for their needs and should create a budget that reflects their new circumstances. Crucially, the budgets should include and plan for how the ex-couple will pay for any costs relating to their children, if they have any.

A financial planner can help the clients develop a budget based on their situation and financial standing. They can also assess how it may need to change over time based on additional costs, such as education fees, and factors outside the clients’ control, such as inflation.

A solicitor can ensure that key arrangements, such as spousal maintenance, are put in place and are recognised by the courts. This can be integral for maintaining a client’s long-term financial security and for making sure that any children involved are properly supported.

3. Consider their pension-splitting arrangements

Pensions are often overlooked during a divorce. However, aside from property, they are typically among the most valuable assets a person can own. So, it’s important to ensure a divorcing couple has considered including them in their settlement.

Failing to do so could mean the future financial security of one party is significantly weakened. For instance, it is often the case that wives have smaller pensions relative to their husbands, as they usually take more time off to look after children.

Clients have three main options for splitting pensions:

• Pension sharing – Where one party pays a portion of their pension into the other’s once a settlement has been decided.
• Pension earmarking – Where one party pays a portion of their pension into the other’s once they start drawing from it.
• Pension offsetting – Where one party receives a larger share of other assets in return for forgoing their entitlement to their ex-partner’s pension.

A financial planner can help clients assess their pension-splitting options. They can work with them to determine which would best suit their position and show them how each could play out over time. They can also help clients to understand the real value of their pension, which may be considerably different to the Cash Equivalent Transfer Value once the Pension Sharing Orders (PSOs) have been implemented.

Solicitors can advise clients on the legal implications of each option, negotiate pension arrangements, and prepare the necessary documentation, including PSOs.

4. Review their protection policies

Divorcing couples might need to review their protection policies, as they could become outdated after the split.

For instance, if they shared a life insurance policy, it may no longer be suitable once they separate. They may also need to update beneficiaries and put new policies in place to reflect their new circumstances.

Financial planners can review a client’s existing protection arrangements, identify any gaps, and recommend appropriate changes. This may include arranging new life insurance, income protection, or critical illness cover.

Solicitors can advise clients on any legal obligations relating to protection policies, particularly where they form part of a financial settlement or are intended to protect ongoing maintenance or child support payments. They can also ensure any protection agreements are properly documented as part of the divorce settlement.

5. Decide what will happen to their house

The shared home is often the most expensive asset a couple owns. It is also where they both live and can carry considerable emotional value, particularly if they have children. So, deciding how to split the property is a crucial step during a divorce.

There are typically four ways ex-couples can split a shared home:

• Both parties decide to sell the property.
• One party buys the other party out.
• Both parties keep the home.
• One party transfers part of the value of the property to the other.

A financial planner can help clients understand the outcomes of each option by assessing their income, assets, borrowing capacity, and long-term financial goals. They can model the financial impact of different scenarios to help clients make a decision that supports their security both now and in the future.

A solicitor can advise on the legal implications of each option, negotiate the terms of any property settlement, and ensure the transfer or sale of the property is completed correctly. They can also prepare the necessary legal documentation, including consent orders and transfer deeds, to ensure the agreement is legally binding.

Get in touch

To find out more about how our sectors can work together for the benefit of our mutual clients, get in touch.

Email info@fbwealth.co.uk or call us on 0333 1122211

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.