Women often have an emotional attachment to the family home when dealing with divorce but this can have disastrous financial consequences. The desire to try and maintain “ normality” is increased when children are involved, however, taking on the whole mortgage or even the costs of running the family home can lead to significant financial problems.
In my experience, women often ignore the question of partner’s pension and, understandably, focus on the family home which provides security at a very difficult time even though it may not be the right thing to do for their long term financial health. It is crucial to ensure that you have something to support you financially in retirement, particularly if you are a stay-at-home mum.
That is why considering downsizing to a smaller a property and taking a share of your partner’s pension could be the prudent financial option. Of course, divorce is an incredibly emotional time but it is vital to understand the long term ramifications of decisions taken when a marriage ends.
A Success Story
At True Financial Design we recently helped a 50-year-old stay-at-home Mum with two children, 15 and 18, who was getting divorced from her 55-year-old husband. She had no experience of investment and was understandably worried about making poor decisions about her finances. The family lived in a £1.5m house with a £400,000 mortgage and her heart was telling her to remain in the property until the children had completed university in around 8 years time.
However, her head was telling her to look into sharing her husband’s NHS pension but she did not feel confident about dealing with the financial implications and feared making a costly mistake. Feeling overwhelmed with the pressure and fearing she would make the wrong decision, she contacted True Financial Design.
We examined the issues she faced and using our Visualise financial system, which allows you to not only see what lies ahead based on your current situation but also know what you need to do to reach your financial goals, came up with some possible solutions.
The First Option
To stay in the family home and ignore any pension share. Choosing this path meant she would take on the whole mortgage plus the running costs and could struggle to maintain her standard of living in retirement.
The Second Option
To split everything 50-50 with half the pension income in retirement and half of the equity in property. This option would mean short term disruption, however, it would give her the ability to live within her means, keep outgoings to a minimum without a mortgage and give the children peace of mind that their mother would be financially safe.
In her own words, our Visualise programme meant she could see that remaining in the family home would mean her being “ screwed” financially. By sharing everything 50-50 we were able to show that she would receive £550,000 to buy a house in addition to the future pension income.
As a result of this advice, our client said that rather than feeling “ in the dark” about how to deal with her situation, the process we followed had given her a clear vision of her financial future and the comfort of being armed with the full facts to make this very important choice.