Financial Steps When Going Through Divorce

Divorce can be a very difficult time. This makes it all the more challenging to agree a mutually agreeable financial arrangement. We cover the essential financial actions to take when going through a divorce in the UK.

 

1.     Review Personal Finances Thoroughly

Before making any division of assets or financial agreements, comprehensively catalogue all existing assets and liabilities:

• Tally all savings in current accounts, ISAs, pensions, investments, etc. for both spouses.
• Itemise jointly owned property, vehicles, valuables along with outstanding mortgages or loans against them.
• Calculate personal incomes from employment, benefits, investments, business ventures, etc.
• List all debts like credit cards, overdrafts and personal loans – held individually and jointly.

Having a complete financial picture will save time, professional fees and stress. Be transparent and honest when disclosing all details.

 

2.     Cancel or Divide Joint Accounts

Cancel any financial products jointly held to segregate finances:

• Bank and savings accounts should be separated into individually owned accounts.
• Credit cards in both names should be closed once balances are paid off. Open new individual cards.
• Joint investment accounts will need to be divided with funds transferred to new individual holdings.
• Insurance policies benefiting the ex-spouse should be changed.

The goal is to have two sets of independent accounts, products and policies.

 

3.     Value All Marital Assets

Determining accurate valuations for all co-owned marital assets lays the groundwork for division:

• The primary residence will likely need a formal valuation. Check recent area sales.
• Pension accounts should be valued by providers or independent financial advisors.
• Obtain professional appraisals of any antiques, jewellery, collectibles, vehicles.
• Tally the net worth of any shared businesses, investments or properties.
• Calculate combined net worth of all financial accounts – savings, ISAs, trusts etc.

Document assets at current market prices before any negotiations. Valuations will inform settlement discussions.

 

4.     Understand Pension Division Options

Dividing retirement funds during divorce has long-term financial impacts:

• “Earmarking” leaves pension intact but allocates rights to certain amounts when drawn. This can be tricky to maintain if the pension is transferred. Pension attachment orders provide access to pensions only when withdrawals commence, which is unlikely to suits both parties.
• Pension sharing orders allow allocating percentages to each spouse. This provides a clean break.
• Offsetting values by allotting other assets to account for pension values can instead save time and money.

Given the complexity, take legal and financial advice to decide optimal pension division approach. Many divorcees still forget to take pensions into account.

 

5.     Consider Tax Implications

Taxes will arise on assets, property transfers and divided pensions:

• SDLT should not apply as long as the transfer is part of a formal agreement,
• Pensions can be divided without a tax charge.
• ISAs cannot be transferred between spouses and retain their status.
• The length of time for transferring assets between divorces has been increased to three years after the tax year of divorce. Unless they are subject to a formal agreement, in which case there is no time limit.

Factor both immediate and future tax liabilities into settlement negotiations to avoid unwanted surprise bills.

 

6.     Finalise Financial Settlement Details

The separation agreement should capture all details on asset division, including:

• Exact percentage split of all savings, investment, and retirement accounts.
• How jointly owned property, vehicles and valuables are allotted and transferred.
• Ownership, division and beneficiary changes for insurance policies.
• Clarity on debts each spouse will assume responsibility for repayment of.
• Key dates for when transfers, account closures and distribution of funds will occur.
• Any ongoing financial obligations like child support or alimony.

Financial obligations should be clear to minimise disputes and make enforcing the agreement easier. Both parties must take steps immediately once signed to affect the division.

 

7.     Adjust Budget Post-Settlement

Once divorce is finalised, a new budget tailored to your individual financial situation is crucial:

• Recalculate income based on ownership of assets and any support payments.
• Reassess expenses and cash needs in light of one-household costs.
• Account for any lost access to employer benefits of ex-spouse.
• Understand new tax obligations from asset ownership.
• Project savings and investment required to maintain retirement goals.
• Make any necessary lifestyle adjustments to ensure expenses are supported by reliable income streams.

Carefully constructing a new budget gives you a strong financial footing after divorce.

 

8.     Rebuild Emergency Reserves

After an asset division, rebuilding emergency cash reserves should be a priority:

• Keep 3-6 months of living expenses liquid for unexpected costs.
• Divert any discretionary or bonus income to replenish savings.
• Reduce unnecessary costs where possible to maximise savings contributions.
• Consider a personal loan only to consolidate high-interest debt, not everyday spending.
• Invest lump sum settlement proceeds not needed for daily expenses.

Having adequate emergency funds provides stability as you establish your new independent finances.

 

9.     Seek Financial Guidance

Divorce creates a major financial crossroads. Whilst it can be a very stressful time, it also presents the opportunity to reassess what is important to you.

An experienced financial adviser can offer invaluable assistance by highlighting the importance of investments, minimising the tax impact, and constructing a personalised post-divorce budget and investment strategy. With prudent financial steps, this major life transition can set you on solid financial footing to build wealth and savings in your new situation.

Our award-winning Chartered advisory team has extensive expertise assisting clients in accurately valuing assets, optimising separation agreements, minimising taxes, and repositioning finances post-divorce.

We provide objective advice every step of the way to protect your interests and maximise outcomes. Fiducia will supply the clarity needed to make sound financial decisions during this challenging transitional period. Speak to our team.