Looking after your finances during and after divorce

Divorce can be difficult at the best of times (if such a thing exists!), and it’s especially difficult if you have money, debts, and assets to work out and divide. The question is, where do you start?

The number of divorces in the UK in 2020 was up by 4% on the previous year at 103,592. It is set to continue to increase.

When you’re considering your money during a divorce, it’s a good idea to think both in the short and long term when arranging a financial agreement. It’s one thing dividing up your money and property now, but you also need to think about providing for children and paying the bills in the longer term, even after retirement. Of course, if you can both agree on how to divide your money and assets it’s much smoother sailing. It will be a lot less expensive to make decisions on who gets what. However, whether you agree or not, it’s always a good idea to find out exactly what you are entitled to and the best way to go about dividing up your finances. Don’t forget, you want your partner to be upfront about their money, so it’s important that you give full disclosure on your financial status too. There are also legal consequences – the distribution of money may fall in your partner’s favour if you attempt to hide assets.

Pensions are often one of the most valuable assets a couple has, especially if one (or both) of you has  defined benefits (aka ‘Final Salary Scheme) pensions. During a marriage, you may have decided that one or other of you puts a larger contribution of salary into a pension pot. The value of the various pensions you may have accumulated are often overlooked in separation agreements and the impact of this oversight can take years to be realised.  When retirement approaches one party can find they have a pension gap because they were relying on the pension of their previou partner - by which time it is much too late to do anything about it. 

They are also complex because they are in the name of one individual and only a court order can make sure that benefits are shared with an ex. Protect your pension and bring in experts in the shape of a Pensions on Divorce expert or a Pensions Actuary.  They will look at your pensions and their values and offer advice on how they can be divided. If you can both agree how to divide the pension benefits, the court order then becomes a formality.

The process can be the same as a divorce, as in you should split your money and assets equally, but unfortunately there is no legal process for separating couples who are not married. This means arrangements can be trickier. The split can be done with or without a solicitor, but seeking legal advice is always a good idea, especially if you are unsure of what you can claim. If you do use a solicitor, remember to factor in their costs for when you reach an agreement. Fees can become very high if it is a long process. 

A good place to start is by listing all your money, assets, pensions, debts, and dependents and who will be paying which bills in the future. From there you can work out how it can all be split between you.

If you do end up unable to make decisions on a divorce settlement but don’t want to take your partner to court, mediation might be the answer. You can use a mediation service whether you are married or not. You will have the benefit of an independent, neutral third party who will help you come to an arrangement that will suit both of you. With the current court backlogs, courts may insist on mediation before you can bring the case to them, so you may save yourself a lot of time and frustration if both parties are willing to involve a mediator.

And if you do remarry? A prenuptial agreement (prenup) might be a good idea. A prenup is a document drawn up before you marry and states who will be responsible for what during a marriage. In the event of a divorce, it will state how the wealth and debt will be divided. A prenup can help protect assets you have prior to marrying and set out support for any dependents. You can also use it to record your assets at the start of the marriage (what pension contributions had been made prior to you getting together, for example). Sounds great, right? No need for solicitors if you divorce. Well, no, not quite. Prenups aren’t legally binding in the UK, but they can go a long way to helping you protect what is yours.