Finances After Divorce

Finances after Divorce
Mary Waring
Independent Financial Advisor

In an ideal world you will receive sufficient settlement from the divorce to ensure you can achieve all that you want to achieve after divorce, lead the life you want to lead and not run out of money.

When there are sufficient funds available there’s no reason why this wouldn’t be the case.

But what happens if there isn’t sufficient funds for this?

Various settlement options will be looked at as part of your divorce negotiations and it’s important to choose the option which is best for your circumstances.

My experience is that frequently the wife wants to stay in the family home and the husband wants to keep his pension intact. He views the pension as “his” money compensating him for the hours he’s put in at the office.

Staying in the family home can often be an easier option for the wife. In a period of extreme upheaval and uncertainty it can be really comforting to have some stability, and it causes the least disruption for the children.

Accepting the home in the settlement also solves an immediate need whereas pension income seems a long way off and therefore much lower down the list or priorities.

However, before you decide this is the outcome you want, you must consider the wider implications of being awarded the home and therefore potentially receiving no pension share.

If you do not work outside the home, or you are in a part time role for child care reasons, you may have very little pension income in your own right.  What will you live on when you get to retirement age?

Basic state pension is currently £5,727.80 each year, which only comes to £477 per month. The government is currently proposing an increase to the state pension to £144 per week. But that is still only £624 per month.

country house
Accepting the home in the settlement also solves an immediate need

Once you have paid all your utilities (gas, electric, water, council tax etc) and bought your food there is likely to be very little left. Therefore it’s very important to take this into account at the negotiation stage.

Don’t wait until you are close to state pension age to consider it. The closer you get to state pension age the less time there is to plan and take corrective action if you are unlikely to have sufficient retirement income.

Women will often work on the basis that there is an option to downsize the house. But do you know how much that is likely to raise? Emotionally it can often be difficult to downsize the family home at this stage since you have memories of happy family times there. You’ve also probably got used to having the children/grandchildren come to stay and having their own rooms.

The time to look at your options for when you retire are during the divorce negotiations themselves, even though retirement may be many years in the future. Retirement will often seem such a long way off that it’s pushed to the back of your mind.

Decisions about your divorce settlement are more than just what share of the joint assets will be awarded to you. It also then comes down to a decision as to what assets you will receive to make up that share. Don’t assume that splitting your assets 50:50 and you getting the house will automatically be the same outcome as splitting your assets 50:50 and you downsizing now and taking a pension share too.

Work with your financial adviser to see which option allows the funds to last the longest. This will then be financially the route which is most appropriate for you. Now of course, there are emotional issues at stake at this time and so decisions won’t just be made based on logic.

The figures may show that your money will last longer if you downsize now, but it’s not emotionally something you feel up to at the minute. If so, revisit this decision in say a year’s time. Maybe at that stage you will be feeling emotionally stronger and ready to take this step.

The important thing is that when you make the decision about your financial settlement, you are making it based on all available knowledge. You may still choose to make your decision based on your emotional response. But at least you know this, and then address the issue again at a later stage.

Mary Waring


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