4 effective ways your clients can minimise losses after a divorce

A couple sitting with a financial planner.

Not only is divorce likely to be an incredibly stressful experience for your clients, but it can also end up being very expensive.

A recent study by Legal & General found that 45% of divorcees see their incomes shrink by an average of 30% in the first year after their split.

The research also revealed that 41% felt their split wasn’t equal. Despite this, only 7% seek financial advice after their divorce, meaning they can be left vulnerable to common missteps that could have long-term consequences on their financial stability.

So, with the potential for significant financial repercussions, read on to discover four ways your clients can minimise their losses after a divorce.

1. Review all their significant assets, including pensions

When going through a divorce, it’s important that your clients review and include all their significant assets in the settlement. This might include their:

  • Main residence
  • Vehicles
  • Pensions
  • Second properties

If any assets are valued incorrectly, they may be used to offset other assets in the split, which could turn out to be unfair. So, your clients might want to consider paying for a professional valuation of some of their shared assets, such as vehicles or properties, to help ensure a more equitable split.

Pensions in particular are often overlooked in divorce settlements. The Legal & General report revealed that 87% of divorcing couples don’t include pensions when dividing assets with their partners, and 23% waive their rights to the value of their partner’s pension.

Not including pensions in the settlement can significantly impact the financial stability of the partner with a smaller pension.

This disproportionately affects women, who tend to have lower pension savings on average and are more likely to take time out of their careers. Many women are also unaware of their husband’s private retirement fund, putting them at an even greater disadvantage.

You can read more about the importance of splitting pensions in divorce in our previous article on the topic.

In every case, your clients can help ensure they don’t make unnecessary losses in a divorce by reviewing all their significant assets, having them valued, and including them in their settlement.

2. Ensure transparency on all their shared costs

The study by Legal & General found that 15% of divorcees go into debt to fund the costs of separating.

To avoid unnecessary or unfair financial strain, your clients should aim to be fully transparent about all the expenses involved in the split. This might include legal fees, valuation costs, and any additional charges that may arise during the proceeding.

They should also be clear on how they will divide any shared debts they continue to hold. For instance, if both partners are repaying a loan, they will need to determine who will take responsibility for sending the remaining payments and how they will be split.

By remaining transparent about their costs and debts, both parties can be sure that the payments are fair, reducing the risk of one party mounting a future challenge against the other.

3. Update their will and other important documents

When your clients divorce, it’s a good idea for them to update any important documents, such as their will, to reflect their new circumstances.

The report from Legal & General found that 11% of divorcees have either delayed or forgotten to remove their ex-partner from their will. It also revealed that 11% of divorcees had not updated the beneficiary on their pension, and 10% still had their former spouse listed on their life insurance policy.

While not updating these documents won’t affect your clients’ immediate finances, it could result in unintended inheritance disputes and may prevent their future beneficiaries from receiving their rightful share of the estate.

They should also be sure to register a new Lasting Power of Attorney (LPA) or their existing documents, as failing to do so could mean their ex-partner makes financial decisions on their behalf if they are unable to make these choices themselves.

4. Sign a Clean Break Order

Once your clients have finalised their settlement – ensuring all costs are covered and their documents are updated – they may want to consider signing a Clean Break Order.

A Clean Break Order is a legally binding settlement that ends all financial ties between both parties. Without one, there is always a risk that one party could make claims against the other in the future, even years after the divorce.

By signing this agreement, both parties gain financial independence, reducing the risk of future disputes over assets, income, or pensions. This helps to ensure their financial standing is clear and that there is no chance of future challenges.

A financial planner can help your clients minimise their losses and regain their financial stability after a divorce

If you have divorcing clients, a financial planner can help them gain a comprehensive understanding of their current financial standing and to see how any decisions they make could affect their future.

A planner can use cashflow modelling to map out different future scenarios, showing your clients how their assets, income, and expenses could evolve over time.

A financial planner can also work with them to adjust their plan to reflect their new circumstances, ensuring they have a sustainable budget, investment strategy, and retirement plan that aligns with their post-divorce goals.

Get in touch

To find out more about how your divorcing clients could benefit from financial planning and how our sectors can work together for their benefit, please get in touch.

Email info@blueskyifas.co.uk or call us on 0118 987 6655.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

The Financial Conduct Authority does not regulate estate planning, cashflow planning, Lasting Powers of Attorney, or will writing.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.