Divorced, separated, widowed or going into another relationship; finances are important. However, boring the prospect may be, if you are starting a new chapter in your life, you need to get your finances in some kind of order. This is not only to protect yourself and your family for things which could happen in the future, but to give you the peace of mind that you have done everything you can to take control of your life once more.
There are a number of general financial planning principles which a good advisor will follow to assess what you need. Long gone are the days of “mis-selling” products which you really didn’t need. (Think of PPI).
If you have children, you probably want to put something in place to protect them in the future too. Whatever income you have, it’s all about using every penny wisely.
You could be in your 30’s or 60’s – it’s irrelevant; it’s always worth speaking to someone in the know, to ensure you are making good use of the funds available to you. Get a divorce financial planner.
One of the first things a divorce financial planner will assess is your needs and aspirations for the future.
- When do you plan to retire?
- Do you have any pensions?
Next on the agenda for any financial advisor is to understand your feelings towards risk and return
- What is your attitude?
- Are you comfortable taking a bigger risk which could lose lots of money short-term because the other edge of the sword gives you a huge return if things go your way?
Some people like to take risks and others don’t. It also depends on how long you have to “play” risk. If you are 20 years away from retiring, then maybe you are prepared to take a few more chances, but if you are retiring in 5 years and your pension pot is looking healthy, you might be more reluctant and happier plodding along risk free.
When a planner feels reassured about your aspirations, they will start to look at different “portfolios” which may work for you (different investments). They will take your risk profile, (which is as assessment regarding how you feel about taking risks) and match that to the outcome you want. So essentially, there is the starting point and the end goal, and the way you want to travel; do you want to take a faster more risky ride on a motorway which could yield more funds and get you to your destination quickly (but could also mean crashing and not arriving at all) or are you going to take the B road, which is safer but slower and more likely to get you to where you want, but years on from the motorway driver?
The decision will be all about your personality, dreams, funds available and job prospects.
- Are you likely to get a major salary increase because of a promotion?
- Are you going to have to fund a child going through university?
- Do you have assets to sell in the future?
- How are you going to afford the house you live in when the children are 18 and your ex no longer pays child maintenance?
- Do you have a partner? What if that person were to die? Do you have insurance for each other?
These possibilities have to be thrown into the scenario and carefully considered.
Tax benefits of divorce
Of course, then there is the matter of Tax; are you taking advantage of any tax benefits you could have. Products such as ISA’s and Pensions all offer tax breaks. If not, changes can be made. Do you have the best savings account? A financial specialist will make sure everything is working hard for you, earning you the best rewards possible and it’s in their interest to make sure your finances are working hard as they normally earn their salary taking a small percentage of your positive growth. In other words, if you don’t earn, neither do they. An advisor will also evaluate any current products you have and see if they are working.
As mentioned, it’s always worthwhile to take a look at projected growth in assets and liabilities, which could be something like a property or investment. Your Income and expenditure forecasts will be studied too. It could be that you plan to downsize your home in 10 years’ time, therefore giving you an injection of cash, or to sell a business, or you could be about to purchase a buy-to-let for your retirement.
All these kinds of matters will be taken into consideration and everything monitored on a regular basis to keep to your plan as circumstances change. If you had a pension sharing agreement as part of your divorce settlement, don’t forget to discuss that too.
Sometimes life throws unexpected stones at us, so it’s a good idea to consider how you can buffer the blow of these. Products such as critical illness cover and life insurance can also be discussed as part of your financial planning. Would you partner be able to afford the house you live in if you were to die?
There is also the matter of Wills. If you are divorced, don’t forget to instruct a solicitor or other professional to re-write your wishes. Any previous Will you may have written while married will be void after divorce. You will want to ensure that any children are provided for in the event of your death.