Max Keeling, Head of Expat Advisory
Divorce and Financial Planning: Planning for a Fresh Start
It’s no secret that divorce is hard on everyone involved and it’s often the financial settlement that creates the majority of the stress. You might be worried that you won’t be left with enough after the divorce is finalised? Or maybe you have never had to worry about long-term financial planning before – your partner always took the lead on that. Divorce can leave you in a very vulnerable state financially therefore working with a financial advisor throughout the divorce proceedings and afterwards can be an invaluable source of support and guidance at a time when you need it most.
Before either party files for divorce, if possible, try to list out all your current joint and individual assets. This list should include:
- Family home
- Holiday home(s)
- Investment accounts
- Insurance – life and health
- Bank and savings accounts
- Credit cards and loans
- Children’s savings for education
- High-ticket items such as jewellery, art, heirlooms etc
You should also have a clear idea of the family monthly outgoings and be sure there is no hidden debt so check your credit score/report to see what is associated with your family address. The less surprises there are throughout the process, the better.
Only by being very clear about what you have from a financial perspective will you be able to actively participate in financial settlement discussions and understand what kind of settlement will work out best for you.
Working with a financial advisor can help you deal with the emotional rollercoaster of the divorce process and stop you from making any harmful financial decisions in the heat of the moment.
One of the most useful things a financial advisor can assist you with is what is ‘enough’ for your new life as a single person or a single person family. This ‘enough’ number is the figure that enables you to retire on your own terms and with the retirement that you want. Once you know this figure, it will make the rest of the financial planning process much simpler as you know what you are aiming for.
Creating a financial plan based around your end goals can provide you with a guide that can help inform the financial settlement. This process can and should be fun. At this point in your life, this is a chance to take stock of what you have already achieved and what you would like to do with the next chapter of your life. Maybe you had joint goals as a couple that no longer work for you or maybe they are more important than ever. All of this should be documented and built into your new financial plan as a single person.
It’s crucial that you work with someone who specialises in lifestyle financial planning as this takes into account your personal and family goals and lines up your financial goals alongside your life goals. Rather than focusing on what to do with the money, a lifestyle financial planner is more concerned about the why.
To help you build this plan, an advisor will use budgeting and cash flow analysis and work through possible financial settlement options to see what impact they have on your short- and long-term financial goals.
The critical thing about this stage is that they can help inform the financial settlement negotiations. Despite how you might feel emotionally, there might not be the need to battle for everything you can get and cause additional tension and stress for yourself. Conversely, if you were thinking of settling for a particular figure to keep the peace then actually maybe you should be challenging for a higher settlement as your plan dictates. Having some structure around your future finances can give you the structure you need to negotiate a financial settlement with logic and reason.
Other important things a financial advisor can help you with include
- Pension planning updates and how you can split pensions. This is especially crucial if one half of the couple has relied on the other for pension and has none of their own
- Estate planning updates – You will need to update any beneficiaries on will and trusts that you might have
- Tax advice to make sure you understand the short- and long-term tax implications of your settlement such as ownership of family home
For those whose partner took the lead with the family’s long-term financial planning, you may feel uncomfortable or ill-equipped to make investment decisions and feel that your money is ‘safer’ in cash. Working with a financial advisor can help with the education and coaching required to invest for growth with confidence.
If you are older with a marriage spanning decades, you will inevitably find that your financial affairs are more heavily entwined. You have probably been planning a joint financial future for a long-time so it can be difficult to unravel what belongs to who.
For those over 60 and either in or approaching retirement, you have less time to individually prepare for retirement and will benefit the most from working with a financial advisor. Now is not the time to make risky or ill-thought out financial decisions. It’s possible you haven’t come out of the settlement as you hoped so your expectations will need to be realigned and new plan will need to be formed. Careful financial planning is critical at this life stage.
Divorce can be devastating with the untangling of finances piling on added stress and pressure. It can also be a time for a fresh start and new plans and getting a trusted financial advisor can be just the help and support you need to make this dream new life a reality.