Recent statistics in an article from Legal & General reveal some interesting trends relating to the impact of pension decisions taken on divorce, despite it being the case that pension pots can sometimes exceed the equity in the home.
As a family law practitioner, the article contains a number of figures from the Office of National Statistics that are, frankly, disheartening, but, in my view, the most staggering statistic is that only 3% of people facing divorce seek financial advice.
The reality is that divorce directly impacts on current and future financial stability, with that impact ranging from meeting day-to-day living expenses, to housing and retirement. Indeed, many of the longer-term effects divorce has on financial matters extends beyond the scope of what most people wish to think about when facing all of the emotional upheaval that even an otherwise amicable divorce can cause.
In my experience, when it comes to dividing the assets of the marriage, most people want to focus mainly (or sometimes almost entirely) on the home. This is understandable. The home has the greatest emotional draw, especially where there are children of the family, and is often seen as the only road to security. However, what is frequently overlooked is how the current home (or any new home) is to be maintained both now and into the future and, in the future, how each party to the marriage will be able to afford their respective costs of living.
Why should you seek financial advice before getting a divorce?
For the financially weaker party, the implications of not getting full advice and/or not considering the impact of waiving pension rights or other legal entitlements for either a quick settlement or in an effort to remain amicable can be very far-reaching. These can include things like:
- losing the home they fought so hard to keep;
- further upheaval for the children;
- an inability to both make ends meet or qualify for benefits;
- long-term insecurity;
- continued mental and emotional distress or an inability to move forward (potentially also affecting physical health); and
- the very real risk of poverty in later life.
It seems to be increasingly the case that divorcing parties look at engaging in financial disclosure as costly, likely to increase acrimony, or altogether unnecessary. It is, in fact, vital – even where you are negotiating between yourselves, engaging in mediation or utilising any other alternative dispute resolution method to try to remain amicable, keep costs down and keep matters out of court.
It is rarely the case that both parties have a clear picture of the financial position of the other, or the needs of the other, and where they do, why not take a quick gander at disclosure to confirm what is already known? It need not be arduous.
Unfortunately, asking the necessary questions and seeking the necessary advice can be seen as being difficult, unhelpful to the process, or, more recently, as “failing” at managing to divorce the “right way”. This is patently wrong. Just as no two marriages are the same, no two divorces are the same and making sure you know what you’re getting doesn’t make you difficult, it makes you savvy. It might also mean not having to, unintentionally, rely on the financial support in later life.
Top 10 tips for managing your finances during a divorce
So, what are some of the key considerations one needs to look at in order to be financially savvy on divorce? Here are my top 10:
- Find a good lawyer, who you trust, who you can work with and who understands your goals.
- Find an independent financial adviser to work with you and your lawyer to set negotiation parameters and provide projections so that you know whether a potential outcome meets both your short- and long-term needs.
- Quantify your needs early on – how will you be housed now or 20 years from now?
- Quantify the marital assets objectively by engaging in disclosure.
- Know your entitlements and don’t throw away long-term needs for short-term gains.
- If you need counselling, coaching or other support to help you through the process and to enable you to give clear instructions, do get such support.
- Negotiate the whole picture, not in piecemeal where focus is on one asset at a time;
- Try to focus on outcomes where possible and not on the underlying emotions that could otherwise drive the process.
- Recognise that what Sally or Johnny got in their divorce(s) may be different from what you can or should expect from yours.
- Ask questions!
The above are simplifications of bigger concepts. For example, quantifying your needs is very likely to extend beyond housing to things like maintenance, possible career changes or training to re-enter the workforce, current income and retirement income, savings and insurances, to name a few. It is important that these things are considered in detail, objectively, and with proper advice.
You don’t need to become a financial expert to be financially savvy.
Getting divorced is one of the biggest financial decisions a person can make. By its very nature it can be a frightening and confusing time. But, if you’re considering or facing divorce, it can also be an empowering and transformative time.
This article is for general information purposes only and does not constitute legal or professional advice. It should not be used as a substitute for legal advice relating to your particular circumstances. Please note that the law may have changed since the date of this article.