3 important reasons to use a financial adviser when divorcing

After the new year celebrations, it’s a sad fact that January can bring a different kind of ‘new beginning’ for all too many Britons.

Speak to any legal professional, and they’ll probably tell you that January is the month that divorce applications skyrocket. So much so that the second working Monday of the month has been dubbed ‘divorce Monday’, as it is when solicitors across the UK see a peak in applications.

The number of married couples going their separate ways in the new year may also have increased after ‘no fault’ divorces were introduced in April 2022. This means that spouses no longer have to provide a fault-based reason to separate, which was designed to streamline the divorce process and reduce costs.

Yet a quicker divorce process may increase the possibility of marital assets not shared fairly. One particularly significant asset that may not be split equitably is pensions, something that could jeopardise one of the divorcee’s financial future.

Always consider your spouse’s pensions when divorcing

While the family home is typically seen as the most valuable marital asset, in reality, one of the spouse’s pensions could be equally as valuable – if not more so. Despite this, an article by PensionsAge in January 2024 suggests that more than two thirds of divorcees don’t discuss pensions when divorcing.

It is a startling revelation, especially when you consider that pensions are a ‘joint marital asset’, which means they should be considered and split between both spouses during a divorce. One reason they may not be is that calculating the value of a pension, and how best to split it, can be complicated.

As such, working with a financial adviser can be a very shrewd move. With this in mind, let’s consider three important ways an adviser could help you achieve long term financial security and get back on your feet financially if you’re separating from your spouse.

1. Ensure you get the pension settlement you deserve

A financial adviser can confirm the total value of your household’s pensions and how much income you could expect if they’re shared fairly. Once the adviser has confirmed this, they can help you to understand how the pension could be split, which could include:

  • a pension sharing order: this is where a court decides how much of the pension each ex-spouse receives. When the share of the pension is awarded, it’s treated as the recipient’s money. This means that they can invest it into any pension of their choice
  • a pension attachment order (formerly known as “pension earmarking”): this redirects part or all of a pension to an ex-spouse. That said, nothing will be paid to the ex-spouse until the pension holder accesses it
  • a deferred lump sum: in this situation, both parties make an agreement to share the pension at a later date.

A financial adviser can help you understand which of the above is likely to be the best option for you.

2. Help ‘inflation-proof’ your divorce settlement

While a lump sum settlement could help you to get back on your feet financially after a divorce, its value could be at risk of dropping significantly due to inflation. This measures the rising cost of goods and services, which means the spending power of your settlement could reduce over time.

To demonstrate this, you might want to consider the following. According to the Bank of England’s inflation calculator, you’ll need £174.37 in November 2023 to have the same spending power as £100 in November 2003.

If your money didn’t grow by this amount during the period, it dropped in value in real terms. Likewise, if your settlement does not keep pace with inflation going forward, it too will fall in value in real terms.

One way you could ‘inflation-proof’ your settlement is to consider investing it. Historically, investing has tended to provide greater returns than cash savings, something backed up by This is Money in June 2023.

It revealed findings by the Barclays Equity Gilt Study of 2022, which tracked the nominal performance of £100 invested in cash, bonds or shares between 1899 and 2022. It found that in the 20 years to 2022, shares outperformed cash despite it being a particularly challenging time for the UK stock market due to the 2008 financial crash, Brexit and Covid.

That said, always remember that past performance is no guarantee of future performance.

3. Help you to create a financial plan to achieve your goals

If your ex-spouse dealt with the household finances, suddenly having to deal with yours may feel daunting. Working with a financial adviser can help you to get back on your feet financially, so that you can look forward to a brighter tomorrow.

One way they may be able to do this is by helping you to understand your financial options. Another way they could help is to create a wealth plan, which could help you to achieve to your short-, medium- or long-term financial goals more quickly.

Not only will this provide peace of mind that your wealth is in safe hands, it will also allow you to get on with the business of enjoying it to the full.

Get in touch

If you’re considering a divorce, or are currently going through one, and would like to discuss the household’s pensions or ways to get back on your feet financially, please give us a call. We can be contacted on 01527 577775 or please feel free to speak to one of our advisers, as we’d be happy to help.


Monday 15 January 2024