Splitting up - how to make the right financial decisions

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Going through a separation or divorce can be one of the most emotionally turbulent experiences, yet it’s also a time that requires clear-headed thinking.

Jokingly dubbed ‘Divorce Day” by solicitors, the first working Monday of January is known for the surge in couples enquiring about divorce. The stresses of Christmas and prolonged family time can be blamed for nearly 40,500 people Googling “divorce” in January alone; but it’s what happens after that enquiry is made that really matters.

Separation or divorce is both an emotionally and financially difficult time. Making important and sound decisions about your finances is key because they will have a long-term impact on your most precious assets: your family, your home and the necessities that will see you through retirement: your savings and pensions. 

What are the key financial planning areas I need to consider?

The role of a solicitor in a separation or divorce is crucial. But equally important – and often overlooked – is the role of financial planning. It usually isn’t as simple as splitting everything in half, and a financial adviser can help you navigate the complexities of a separation or divorce, such as splitting assets, unsecured debts and pensions; ownership of the family home; repayments on a joint mortgage and the unexpected tax bills you might have to pay. 

Because separation and divorce aren’t legally the same thing, the advice you may need will depend on your situation. As a starting point, it’s worth thinking about protection planning, tax planning, pension planning and mortgages as areas that need expert attention. A qualified adviser can help you map out how life will look for you and your family post-break-up, so you can enter this phase of life knowing that you have the right provisions in place.

What are the tax implications of a separation vs. divorce? Will I have to pay more?

This is where it’s important to think ahead. The tax implications you face will depend on your situation, but seeking the right advice at the right time could save you paying unnecessary tax. Income tax tends not to be an issue, as its individually assessed. It’s capital gains tax (CGT) that probably affects separating or divorcing couples the most.

Anything transferred or gifted to your spouse or civil partner doesn’t attract CGT, but it does for divorced couples, and separated couples who haven’t lived together for an entire tax year. The size of your tax bill – and whether there are other taxes you need to think about – will depend on your personal circumstances.

If you’re considering splitting from your partner, engaging an expert as early as possible will help you to understand what this could mean for you, and allow you to focus on a fair and amicable break-up.

What help is available?

Handling a break-up is difficult enough, without the added pressure of dealing with financial and administrative details. In a time where important decisions can’t be left too late, or to chance, seeking financial advice could mean you remain in the best financial position possible for your circumstances.