Untying the knot: The six things you need to discuss when splitting your finances

Ahead of Divorce Day, Alex Price suggests six things you need to discuss when navigating your finances correctly when undergoing a divorce.

 
Going through a divorce is a stressful and upsetting experience. But there are some important considerations which need to be factored in early in the separation process in order to minimise complications down the line, particularly if children are involved.

One of the first decisions is whether you can come to an agreement on the split of assets between yourselves or whether to enlist further help. If you are close to reaching an agreement, but with a few sticking points, you could attend mediation. Alternatively, you’ll need to instruct a divorce solicitor to act on your behalf.

Speaking with a financial planner can help those getting divorced make the right decisions and take control of their financial future, as well as help you look at the life long financial implications of the decisions you make now and how they will impact you in the long term.

To help ease the financial strain, Alexandra Price, Director of Financial Planning at Charles Stanley, shares her top areas you need to discuss when doing through a divorce or separation.

1.  

   Understand the assets you have

    

The first step in the process is to draw up a list of assets that may need to be divided – pensions, property, and investments. The house and pension fund pots will generally form the largest two assets and dividing them can be complicated.

2.  

   Think about the family home

    

The family home is usually one of the assets that is most unsettling, particularly if children are involved. You have several options to consider in splitting the family home. You can sell the property and share the sale proceeds. You can arrange for one party to buy out the other party; or you can keep the home under joint ownership with one partner continuing to live in it. Many couples divorcing will have a joint mortgage, but once separated may arrange for only one person to remain on the deeds. If you can’t afford to take over the mortgage it may be possible to get a ‘guarantor mortgage’.

3.  

   Put the children first

    

Going through a divorce is always difficult, but if children are involved, it can become even more complex. So before you consider how you split your assets, you should ensure your children are well provided for. Once you have agreed on custody arrangements, you need to discuss the financials. How will both parents be contributing to day-to-day costs, any school fees you may have, clothing and clubs – the list could go on.

4.  

   Split your pension pots

    

One thing to be wary of is to ensure you value all assets correctly, particularly pensions. Often divorcing couples will focus on short term needs, forgetting to include large benefits within pension schemes, with many often losing out by not demanding a share of an ex-partner’s pension. And pension benefits can be worth as much as the family home! When splitting pension pots, you have several options. You can share your pension, transfer funds into you ex-partners name or offset the value of the pension fund against other assets; or earmark where your ex will retain a share of the pension scheme.

5.  

   Change your will

    

If you are going through a divorce or separation, then you may need to change your will to accommodate your new circumstances. Make sure you update this as soon as possible to ensure that your wishes are granted.

6.  

   Consider Capital Gains Tax

    

Under current law, assets can be transferred between spouses and civil partners free from Capital Gains Tax (CGT) up to, and including, the year of permanent separation.  After that, the transfer of assets is subject to CGT with the deemed disposal proceeds being the market value of the asset.

The government has proposed new rules, which if passed, will extend the period for exempt transfers to 3 years after the end of the tax year when the spouses or civil partners cease to live together. Although these new proposals are favourable for separating couples, tax consequences of every proposed financial settlement need to be considered and it is best to involve a specialist if your affairs are complex.

7.  

   Update financial products and policies

    

When going through a divorce it’s easy to focus on the big financial assets – investments, the family home and pensions – but what about other financial products you have such as insurances, bank accounts, monthly subscriptions? The list could go on. Once you have agreed on the spilt of the big financial areas, then it’s important to consider all other financial products that need to be spilt accordingly. Not doing so could impact your financial future.
 
Alex Price is a Financial Adviser at Charles Stanley >