When a couple separates, financial considerations are likely to be one of their primary concerns alongside arrangements for children.

Yet, most couples head for legal advice before they seek help with their finances. Indeed, Money Marketing recently reported that just 7% of divorcees consult a financial adviser during the separation process, despite two-fifths feeling that an equal situation was not reached financially.

A failure to properly consider a fair financial settlement can have serious implications for a client’s future. So, if you have clients who are separating, here are five important reasons they may want to seek professional advice.

1. Clients may fail to adequately consider the division of pensions

Despite pensions often representing a significant proportion of a couple’s joint wealth, FTAdviser reports that just 1 in 5 divorcing couples discuss pensions when dividing their assets.

Not adequately considering how pension assets should be divided can often have a negative effect for one party – often the female in a relationship. 

Standard Life reports that the average age women get divorced is 44. As a result of childcare and other caring responsibilities, this can mean the gender pay gap at this age is very high, at 18.1%. This will often have a direct impact on pensions as pension contributions are usually a percentage of salary.

Offsetting – where one party receives a property and the other receives other assets of roughly equivalent value – is one reason that one party can end up disadvantaged when it comes to their pension.

If one party takes the family home (often the female partner, especially if children are involved), they may forego a claim on pension assets. This can prove an issue later in life when they have insufficient pension savings to maintain their desired standard of living.

As Pension on Divorce Experts we can work with individuals to establish what a “fair” split of pensions looks like. We can also help clients to set up arrangements to accept any payment through a Pension Sharing Order.

2. Clients may need a financial consent order

If clients want to formalise how they are dividing property, savings, and pensions assets they may need bespoke advice before they agree a financial consent order.

Clients may need to understand the implications of splitting their assets and what it means for their own future.

We can use sophisticated cashflow modelling to look at a client’s position after the divorce taking into account the division of assets. This can help them to see their financial future in black and white, giving them the confidence and information needed to make decisions about a potential settlement.

Without a formal settlement, either party may be able to make a financial claim against the other in future. Which? reports that only around a third of divorces have any kind of financial order attached to them.

3. Clients may need advice regarding their property arrangements

Where they will live is likely to be a primary worry for many separating clients. Issues concerning property can often be emotive ones, especially if there are children involved and a couple own their own home.

Many clients will benefit from understanding whether, for example, they will be able to afford to take over the mortgage on their home in their own right. Others may sell their home, divide the proceeds, and want to understand what sort of property they can afford next.

Speaking to a professional can help clients to understand their position and what they can afford. This can give them the reassurance they need to make important decisions about their living arrangements.

4. Clients may be underinsured

Often, clients may have taken out insurance such as life cover, critical illness cover, or income protection in their joint names.

Many insurers won’t allow a couple to “split” a policy as such, and so many separating clients cancel cover or let policies lapse when they go their separate ways. This can leave many clients underinsured, particularly if they have debts such as a mortgage, maintenance commitments, or children.

For example, if one party agrees to pay child maintenance, they may want to ensure that this payment continues if they have an accident and are unable to work, or if they were to pass away prematurely.

A financial planner can help clients to understand the protection that will be appropriate, and put the right cover in place.

If one party does maintain any policy, they may also have to speak to the insurer about changing the named beneficiary. This brings us to…

5. Clients may need to update their will, pension expression of wishes or Lasting Power of Attorney

When clients separate, they will often need to amend their estate plan to reflect their new circumstances.

• They may need to write a new will to change their beneficiaries
• They may need an updated Lasting Power of Attorney
• They may need to contact their pension provider(s) to update who they would like their pension paid to in the event of their death.

Failing to update these important documents could result in issues if a client were to pass away, as their assets may pass to someone they would no longer have chosen.

Get in touch

If you have clients who are divorcing, we can provide bespoke, tailored advice to help them understand their financial future and ensure a fair split of assets. 

To find out how we may assist, 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.

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