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The fear of starting all over again and all the financial worry that can bring with it can understandably have a profound effect on many people going through divorce or separation.
This fear can be particularly acute for those who have not had to deal with financial practicalities such as tax, standing orders and direct debits during their relationship.
If you are going through divorce or contemplating it and are concerned about future finances, this article will help to keep you on the right financial track throughout your divorce and beyond.
Be Open and Honest
Not sharing financial information during a relationship can contribute to problems during divorce proceedings.
One spouse may have no idea where the budget line is – or even where it should be drawn – and may have unrealistic expectations of what they are entitled to, or what is a realistic and affordable.
One spouse may have hidden savings or income from the other or scrutinised the other’s spending without being transparent about their own. On divorce, there is nowhere to hide. It is fundamental that both spouses fully and frankly disclose everything they have to each other as a starting point for an informed negotiation.
The Importance of Financial Disclosure
In every divorce, separating couples must provide to the other full details of their assets, income, pension and liabilities. This is known as financial disclosure.
Financial disclosure ensures that both spouses can make fully informed decisions about what they consider to be a fair settlement. A failure to disclose anything material to the settlement can in some cases lead to an agreement being set aside. Lawyers and judges know every trick in the book and will ask questions if they suspect that money has been concealed. They may even employ forensic accountants to track down missing assets.
Don’t be tempted to hide money in offshore banks. These still have to be disclosed. If you do not provide everything that is necessary to understand the financial position, family courts have the power to question your accountant, your financial advisor and even your bank manager.
Setting up a new business shortly before separation may well be seen as suspicious or even a deliberate attempt to hide assets. Taking steps designed to put money beyond the reach of your spouse could lead to injunctions being made against you, freezing assets, or ordering the return of monies from third parties. In the long run, actions such as these are highly unlikely to succeed and will almost certainly damage your credibility in the eyes of the court.
The Penalties of Concealing Assets
If it later comes to light that you have withheld material financial information during the financial disclosure process, your spouse might be able to ask the court to set aside the Financial Consent Order and relook at what would be a fair order – taking into account all the assets, including those not previously disclosed.
The court can also make an order that you pay your ex’s legal costs. In the worst-case scenario, deliberately withholding financial information in breach of a court order can amount to a contempt of court for which a range of penalties (including ultimately imprisonment) could be imposed.
Include Pensions in Financial Settlements
Frequently overlooked in financial settlements, pensions are frequently one of the most valuable assets of a marriage. They often make up the second highest- value asset in a divorce settlement after the family home – or sometimes the highest.
It is key that information about pensions is made available in the financial disclosure process which must include details of all pensions, including state pensions – and the value of each one.
The most common way in which a disparity in pensions is addressed in a divorce settlement is pension sharing. Pension sharing splits the pensions immediately and provides a clean break
As an alternative, in some cases ex-spouses prefer to take a greater share of the equity in the family home or other capital, as a trade-off for a share of the other’s pension.
Some divorces may involve several pension arrangements so it is important to consider which arrangements should be shared, and to what extent. Pensions are complex and, save in very straightforward cases with pensions of limited value, it is important to get specialist advice about them before agreeing a settlement.
The pension share may be internal (when the recipient becomes a member of the scheme) or external when the share must be invested in an existing or new arrangement of the receiving party. Care should be taken to obtain details of the cost of any transfer.
In deciding what is best for them, the couple need to consider how their respective financial needs will be met and what other assets are available for distribution.
Consider Financial Planning
It can be helpful to have financial advice during settlement negotiations. Many financial advisers use cashflow modelling, which can be a valuable way of how different settlement options might pan out in the future. In processes such as collaborative practice or mediation, it is quite common to bring a financial adviser into the process as a neutral to help the discussions. Further financial advice can then be taken on an individual basis when settlement terms are clear.
Get a formal Financial Order
Once a financial settlement is agreed, it is almost always best for the terms agreed to be made final and binding in a court order. This is a legally binding document which details the main assets owned by divorcing couples and sets out the financial arrangements agreed between them. The terms of an order are binding and can be enforced through the courts if there are any problems putting those terms into effect.
It is important to understand that the divorce process itself does not dismiss financial claims which can be pursued many years after the divorce has been finalised provided the person bringing the application has not remarried. Putting off the conversation at the time of separation can sometimes just be kicking the can down the road.
Try to avoid exceeding your budget
I am not a financial adviser, but these are some pointers which might be useful to think about:
- Create a ‘to do’ list of all things financial (bills etc) and an aspirational list to set goals for enjoyable things such as treats and breaks
- Consider having two bank accounts – one for day-to-day expenses for the house, food, car and associated expenses, direct debits, standing orders and credit card payment. The second is for setting aside some savings for exceptional expenses such non-essential clothing, holidays, and house repairs.
- Set out the absolute and exact payments needed every month for your house and family
- Know when your maintenance payments arrive and budget accordingly. Ensure standing orders don’t go out before your monthly payments are due in
- Apply to your Council for a 25% council tax discount. The concession applies if you are on your own or have younger children
- Expand your support network if you’re on your own or have children. Now is an ideal time as the country emerges from lockdown
- Take professional advice on preparing and budgeting for your own retirement
- Make a will. If you have a pension or life assurance, ensure it includes your chosen beneficiaries and is updated. Review it every few years.
- Stay healthy in body and spirit – try new things. You could also consider engaging a life or Divorce coach who specialises in helping people in your situation prepare for their new future
Spousal Maintenance and Child Maintenance
Remember that Spousal Maintenance will usually be paid for a period of time to enable you to adjust to financial independence or when your financial needs are reduced, for example, when your children finish school or university, or leave home.
Be aware that your spousal maintenance will stop if you remarry or enter into a civil partnership or if either of you dies. It could also be affected if you meet a new partner and move in together
It is also important to plan for when child maintenance – which is mandatory for both parents for children under sixteen and youngsters under twenty who are still in full time education – comes to an end.
As part of our holistic approach, Jones Myers advises and guides our clients through the stages of divorce during and after their divorce.
A champion of non-confrontational divorce and resolving issues in a spirit of collaboration and cooperation, our extensive expertise includes alternative to avoid courts which include mediation and collaborative family law.
Our pre-divorce and post- divorce support includes helping them to stay on the right financial track as they embark on the next chapter of their lives.
Read more articles by Nicki Mitchell.
About Nicki Mitchell
With extensive experience in family law, Nicki specialises in the financial aspects of relationship breakdown – and particularly complex cases involving family businesses, multiple properties, and complicated pension arrangements.
A skilled Mediator, Child Inclusive Mediator and Collaborative Family Lawyer, Nicki champions Alternative Dispute Resolution processes which avoid a lengthy court process and can lead much more quickly and cost effectively to a successful resolution.
Her exceptional track record also includes advising clients on the more traditional methods of resolving issues surrounding family breakdowns.
Direct Dial: 01904 202553 or email Nicki.mitchell@jonesmyers.co.uk. Website: www.jonesmyers.co.uk