Financial considerations when navigating divorce

Financial considerations when navigating divorce

Divorce is a life altering event that can be extremely stressful when considering the split of marital assets and parental responsibilities. Navigating a divorce can be emotionally challenging, and understanding the financial implications is crucial.

During divorce, it’s typical to sell shared assets like the family home or for one person to buy out the other. However, many people overlook an essential aspect: pensions. Here are some crucial considerations to bear in mind during the divorce process:

Pensions

Pension funds are often the second-largest asset owned by a couple after the family home, but how valuable these benefits are can be misunderstood when looking at the split of marital assets.

There are several ways to split a pension, but achieving a fair resolution of all the financial issues can be a stressful process.

It’s common for individuals to have multiple pensions; a work pension, a personal pension and of course a state pension.

During divorce proceedings, pensions will be valued using the cash equivalent transfer value, this value looks at all aspects of the pension not just the fund value as it will help you understand the amount you would be entitled to if you transferred your pension. This is sometimes less than the actual fund value of your pension due to transfer fees.

Your pension provider will be able to provide a cash equivalent transfer value for your pensions dated at your separation. Your pension provider will also be able to create a statement showing how much wealth was accumulated throughout your marriage.

Defined benefit pensions, for example final salary pensions, are not as easy to value so it is important to speak to a pension actuary early in the divorce process to establish this valuation, as it can be a lengthy process.

If you have sourced a report from a Pensions on Divorce Expert (PODE), we can help you understand the implications on your overall financial planning.

Employer Benefits 

Another often over-looked aspect in divorce is the loss of employer benefits your partner received that you may have benefited from. This can include death in service life assurance, private medical insurance, the use of a company car and a company pension scheme.

These benefits, providing financial security or enhancing your lifestyle, may not be available post-divorce and may need to be self-funded in future.  So, it’s important to consider which ones are important to you and how much they will cost to replace.

Questions to ask yourself to ensure your are financially secure:

• Will my new mortgage or any other liabilities be repaid if I die or suffer a critical illness?
• Will I have enough income to cover all my monthly expenses if I can’t work due to an accident or an illness?
• If I’m now wholly responsible for my income in retirement, do I know how much I will need and am I saving enough to achieve this?

We don’t expect you to have all the answers or even all the questions, but speaking to a financial planner can help identify any potential threats to achieving your financial goals, along with navigating your way through a divorce successfully.