The crucial relationship between financial advice and divorce

Story

Out of the hundreds of thousands of divorce proceedings that occur each year in the UK, very few couples actually decide to seek financial advice during this time.

Divorce can be a tumultuous time, not only emotionally, but also financially. It, therefore, seems surprising that very few people gain assistance from a financial adviser during this time. In fact, there are only 42 advisers in the UK who actually specialise in family law. With the lack of specialist advice in this crucial area, we have highlighted a number of financial issues to be aware of in the light of a divorce and what can be done in terms of financial protection.

Mortgage ownership

Decisions regarding the fate of the family home is one of the biggest financial woes in the midst of a divorce. One of the first considerations, if the mortgage is not held in joint names, is to protect your position in any decisions that are made regarding the property. If the house is solely in your spouse’s name and is registered at the Land Registry, you can apply for a ‘home rights notice’. If your property is not registered, you can apply for a ‘class F land charge’ or a ‘restriction’. The aim of these actions is that your ex-spouse will not be able to sell the property or apply for a larger mortgage without you being notified first.

Mortgage repayments

For couples who have a joint mortgage, there are several ways in which mortgage repayments can be dealt with. If the house is to be sold, the value of the remaining mortgage is calculated and deducted from the value of the property. Whatever is outstanding then goes into the ‘pot’ for distribution. If one person is to continue living at the property, it needs to be assessed how the property’s net value will be shared between each party. Evaluations need to be made as to whether the remaining person can afford the repayments on their own. If so, the mortgage could be transferred into their name. However, if there are issues such as low income or poor credit history, this would not be possible. The mortgage would then have to remain in joint names, meaning that each party is liable for the repayments. In this scenario there are options such as taking out a ‘deed of trust’ which can indemnify the ex-partner against the debt.

Division of unsecured debts

In terms of unsecured debts such as credit cards, bank and car loans, courts will assess if the debt was incurred during the time of the marriage and if so, the cost will be deducted from the total value of the assets. This means that even if the debt was incurred by one individual, this could still be considered as a collective debt. The courts, however, can evaluate who they believe should be responsible for the debt and can order one party to assist in the repayments, particularly if they earn a higher income than their ex-spouse. These are known as maintenance payments and can be set for a limited period of time or until one of you dies. The payments can be reassessed if you were to lose your job or your ex-spouse has an increase in salary.

Division of pensions

This is potentially the biggest area in which it could be advantageous to use a financial adviser. There are several different options in which pensions can be divided during a divorce. Depending on the type of pension in question and whereabouts you live in the UK, the rules vary in Scotland in comparison to England, Wales and Northern Ireland. The options include, pension sharing, pensions offsetting, deferred pension sharing, deferred lump sum and pension attachment order. It is still possible to split pensions after you’ve retired but your ex-spouse would not be able to take a lump sum from your pension if you’re already receiving an income from it. If you seek the help of a financial adviser, they can better advise you on the most suitable course of action for your situation.

Tax implications

Capital gains tax often isn’t applicable for assets that are transferred to your spouse whilst you’re still married. However, this may apply if assets are transferred after you’ve divorced. Such assets include shares, valuable possessions and property. Calculating gains and losses on these assets can be quite complex, so it could prove helpful to gain financial advice if possible.

With so many financial considerations to be mindful of during a divorce, gaining independent financial advice could mean you remain in the best financial position possible for your circumstances. If you would like to discuss any aspect of your finances, get in touch and speak to one of our experienced financial advisers.

This article is for generic information only and should not be constructed as advice. Please contact us before proceeding with any course of action.

Latest news

Find all the latest industry news, all written by our in-house industry experts.

What makes a good financial adviser?

What makes a good financial adviser?

Story 19/11/18

The most recent Financial Lives survey conducted by the FCA revealed that only 40% of people trust financial advisers. With clients appearing to be dissatisfied with the level of service they're receiving, we look at the most important qualities a financial adviser should possess.

Read article
Monthly economic commentary: November 2018

Monthly economic commentary: November 2018

Commentary 16/11/18

Our chief economist, Colin Warren, explores how an increase in US government bond yields is giving way to market volatility and increased investor nervousness, in his latest economic commentary.

Read article
Why is good pension advice so hard to find?

Why is good pension advice so hard to find?

Story 08/11/18

A recent pensions study conducted by YouGov revealed that 45% of people find good pension advice hard to access. We look at the reasons for this and what can be done to help.

Read article
More articles

Get in touch

To discover how AFH's unique approach to wealth management can help you build a better future, please contact us.