The financial implications of divorce

Divorce is emotionally-complex and often accompanied with difficult financial implications.

There is a lot to think about and your decisions can have a long-term impact on your financial future.

If you’re getting divorced, you need to see the real picture which can be tricky when you’re in such a highly-charged emotional situation.

The key to a ‘good divorce’ is usually to achieve a settlement that:

• Makes clear financial sense
• Has limited tax implications
• Is in the best interests of both parties or is mutually beneficial.

Up until a certain period of time, spousal exemption will usually apply. However, any settlement reached after that period of time may no longer be exempt, and Capital Gains Tax will apply.

Individual financial implications of any divorce settlement can vary, depending on a person’s existing financial circumstances. A financial advisor can guide you through these potentially life-long implications, helping you make the right decisions for you, securing your safe financial future.

When reaching a divorce settlement, there are three key areas which should be considered – savings and investments, mortgages and pensions.

Savings and investments

Savings and investments are often treated differently depending on your location.

In England, Wales and Northern Ireland, all of your savings and investments will likely be taken into consideration when reaching your financial settlement. However, some assets, which were inherited before you were married may not be treated in the same way as others.

Whereas in Scotland, it is generally only investments and savings that you have build up during the time you have been married that will be considered as ‘matrimonial property’. However, any increase in the value of previous investments or savings may be taken into consideration.

Dividing these financial assets can be highly-complicated, and often a financial advisor can help to guide you through the process and ensure you understand the true financial implications of your decisions.

Mortgages

Deciding whether or not to remain in your marital home can be one of the biggest decisions when reaching your divorce settlement. However, it may not always be feasible or make the most financial sense.

For example, your home may have large mortgage repayments, which you may struggle to meet individually, or you may not have enough money to buy your ex-partner’s share of the property.

A financial advisor can help you forecast your future finances, helping you understand what you can and can’t afford in the long-term, guiding your decision-making pertaining to your marital home and its financial responsibilities.   

Pensions

Pensions are also often taken into consideration in the divorce process – they can actually be one of the largest financial assets to divide. As with savings and investments, the way in which these are considered varies, depending on your location.

In England, Wales or Northern Ireland, the total value of all of your private and workplace pensions will be taken into account. Whereas in Scotland, only the value of the pensions you have both built up during your marriage will be taken into account. This means any funds built up following your separation or prior to your marriage will not be considered.

Dividing pensions – or reaching a pension offsetting agreement – can be a difficult situation, and often the implications of any decisions made won’t be clear until you come to claim your pension. A financial advisor can help you to visualise your pension and understand how it will be affected by any decisions you make as part of the divorce settlement.

Securing your financial future

As you divorce, you will likely be starting a very different life. Your finances – savings, investments, budgets, etc – will all need to reflect this.

At Whateley Wealth Management, we work closely with you to ensure you have all the information you need to make the best decisions for you, helping to secure your safe financial future – whatever that may look like.

For more information, speak with one of our advisors today - Contact Us