Some 42% of marriages in England and Wales end in divorce and many make big mistakes when dividing the assets.
What seems like a good idea for the short term, may have a detrimental effect in the longer term.Here are six of the biggest financial mistakes women make in divorce settlements and how to avoid them.
1. Fighting to keep the family home in lieu of a pension
Women often have an emotional attachment to the family home, especially when there are children involved. However, taking on the whole mortgage (or even just the costs of running the family home) can have disastrous financial consequences if it is not affordable.
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You are often better off downsizing to a smaller property and taking a share of your partner’s pension. Women often ignore pensions and focus on the house but in many cases that is not the right thing to do. It is important to ensure you have something to support your retirement, especially if you have been a stay at home mum.
2. Splitting the total pension pot rather than the retirement income
Women often agree to split their partner’s total pension pot in half, however in many cases they will need more than half to receive the same level of income in retirement, especially if they do not have the earning capacity to continue growing their share.
It is also important to understand what income a pension will provide you with, rather than just looking at the capital value. There are different pension structures and determining the income that could be provided from each pension arrangement is crucial.
3. Accepting asset valuations at face value
There is a legal requirement for both parties to fully disclose the value of their assets in divorce proceedings. However, valuing assets such as pensions and businesses can be complex and there are ways to hide their true value. Many people do not know how to value pensions properly and there are different ways to value businesses that do not take account of all the assets. Make sure your partner submits all supporting documentation when declaring the assets.
If in doubt, ask a financial adviser (for pensions) or accountant (for businesses) to check the figures and make sure you have the correct information.
4. Failing to identify and take account of all debts
Many women are unaware they can be held jointly responsible for all debts in some instances, even those in their partner’s name. Make sure you know the full extent of any outstanding debts and consider the impact they could have on your credit file.
As soon as possible you should cut financial ties with your ex-partner as keeping joint loans and credit cards can be dangerous as you are both responsible for the whole debt. You should also close any joint accounts and split the assets.
5. Failing to finalise the arrangements
Without a signed consent order, either party can make further demands for income or assets down the track, even if they are gained after the marriage ended. Make sure you protect yourself from any nasty surprises by having a solicitor draw up a consent order which will protect your future assets. Don’t forget to make a new Will so your assets will go to your children or chosen beneficiaries after you die rather than your ex-husband.
6. Upon receipt of the final settlement, failing to create a financial plan
Failure to create a financial plan for the future could result in you running out of money later in life. To avoid this, it is important to understand what your current situation is and what your financial future looks like now you have received your share of the settlement.
If you are unsure of what this looks like, seek financial advice with an adviser who uses cash flow modelling as this makes tool makes your future a very visual picture rather than just numbers.
Thank you to Lottie Kent for this super useful article. Hopefully many financial mistakes can now be avoided. Lottie features in The Hug Directory and specialises in divorce financial planning, so give her a call today. Find out more about her right here….
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