In recent times, the start of each year has brought with it a new occasion: “Divorce Day”.

So-called because law firms reportedly see a spike in couples filing to split in the new year, it falls on the first Monday after 1 January, likely due to high numbers of separating couples hoping for a new start.

MoneyWeek reports that Ministry of Justice data shows most divorce applications typically come in the first quarter of the year.

And, in recent years, the Independent reports that there has been a rise in divorce rates. In 2021, there were 113,505 divorces granted in England and Wales – a 9.6% increase on 2020.

If you have clients who are separating, financial advice can help them in a multitude of ways. Here are four.

1. Divorcing couples need to remember to consider pensions in their settlement

In many cases, the pension assets of a couple will match or even exceed their property wealth. Despite this, there remain staggering numbers of separating couples who simply don’t consider pensions in a financial settlement.

Professional Adviser reports that:

• 73% of people who divorced said pensions weren’t taken into account in their financial settlements.
• One third of those divorced people didn’t consider pensions during the divorce.
• 1 in 10 said they weren’t even aware that pensions could be shared.

At present, only around 1 in 8 financial orders on divorce contain a pension sharing order. It remains common for one party, often the wife, to ignore claims against their spouse’s pension or forego claims due to their desire to retain the family home. 

While this may provide short-term stability, many clients don’t understand the true value of the pension share they may be giving up, and the impact ignoring it will have on their long-term future.

As a Pensions on Divorce Expert (PODE), we can help your clients to understand the value of any pension assets, create a Pension Sharing Report, and assist with investing a pension share they have received as part of a financial settlement.

2. Individuals may need to arrange new protection

Many couples arrange their financial protection – life insurance, critical illness cover and the like – in their joint names. 

If they later separate, it can be hard to “divide” these policies. Some insurers will let an individual retain a formerly joint policy in their single name but, in many cases, policies lapse or are cancelled.

This can leave one or both parties underinsured. For many clients, this will be an issue, particularly if they have dependent children.

In addition, even if clients retain their protection, they may need to make changes to trusts to nominate a different beneficiary.

3. Property is likely to be a key concern

One of the immediate challenges that separating couples face is “where do I live?”

If a couple owns a property, one party may want the security of remaining in the family home, particularly if their children also live there. However, there may be challenges proving to a lender that they can take on any mortgage in their own right.

Alternatively, the parties may decide to sell their home and then each must find alternative accommodation.

Additionally, any financial settlement may include lump sums which either party may want to use as a deposit towards a new home.

Many individuals seek the reassurance that they can take on an existing mortgage, or afford the loan they need to buy a property post-divorce. We can help to provide this.

4. Cashflow modelling can help them to understand their financial future

Couples benefit from the ability to pool their income and resources to make rent/mortgage payments, pay regular bills and so on.

So, one of their key concerns when they separate, is “what income do I need to live on my own?”

Cashflow modelling can help clients to understand their future financial situation. We can model a range of scenarios, factoring in variables such as income, maintenance payments, outgoings, and inflation to show them whether the future they desire is affordable and, if not, what a financial settlement may need to look like.

Seeing their future in black and white can be a genuinely transformative moment, and give a client the confidence to make practical decisions during the divorce process.

Get in touch

If you have clients seeking to understand their financial position after divorce, or you need the help of pension experts with more than 20 years’ experience, we can help. 

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

Please note

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

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 results. 

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.  

The Financial Conduct Authority does not regulate cashflow planning.