No one says ‘I do’ at their wedding thinking, ‘one day, we will get divorced’. Yet by their silver (25th) wedding anniversary, four out of ten (41%) married couples in the UK have done exactly that, according to latest figures from the Office for National Statistics.
If your own marriage has broken down and you are getting divorced, there’s one key thing you need to do right now: pull on your financial spanx. Inform yourself and put the right support in place now. You’ll save yourself a lot of heartache – and money – later.
Starting with the technicalities
Everything that either you or your spouse owns – either jointly (in both your names) or individually (in just your sole names) – will be considered a marital asset and can be divided by a judge in order to meet your financial needs (which usually means your needs for housing and income), or the financial needs of your partner. “The court’s main consideration will always be how to best meet the needs of the parties from the assets that are in the matrimonial pot” says Joanna Newton, a divorce lawyer at Stowe Family Law.
This ‘matrimonial pot’ almost always includes your family home, even if one of you never paid into the mortgage and only one partner’s name is on the property deeds. It also usually includes any pensions that either of you have been saving into as individuals, and any other savings, investments and assets, which may be owned jointly or in your sole names.
The starting point with the separation of your finances is normally a 50:50 split, but there are a number of reasons why you or your spouse might be said to “need” more or less than 50% of the marital assets when they are divided – and it is up to each of you, individually, to provide evidence and demonstrate how much you need vs your spouse, during the divorce process.
You may also be entitled to “spousal” maintenance: monthly payments, usually for a time-limited period, but it can be for the rest of your lives. This entitlement can sometimes be “capitalised”, so that you end up getting more capital instead of these maintenance payments.
What if you have kids?
If you and your spouse have dependent children, you may also be entitled to child maintenance payments. The exact amount you will receive is likely to be affected by your child arrangements, which detail where your children should live and how much time they should spend with each parent.
Importantly, such arrangements may also be used by the court to determine what size of property would meet your needs, if there isn’t enough money to go around. “You might have a situation where the children live for the majority of the time with their mother and spend only one night a week with their father. She clearly needs more space for their kids, while he can probably make do, says Tamsin Caine, founder of Smart Divorce, which specialises in offering divorce financial advice.
This could have an impact on the division of assets, with one parent being allocated more of the marital pot to get a bigger property than the other.
Usually, though, the court will try to make sure that both parents have suitable accommodation to allow your children to stay with both of you, if it’s safe for them to do so.
Preparing to build your case
“What I usually say to my clients is: get mortgage advice, get financial advice and figure out what your expenditure will be without your partner, when all your utility bills and housing costs will be on you,” says Dispartio.com divorce strategist Melanie Carson.
You’ll also need evidence estimating your maximum earning capacity after your divorce. “Even if you don’t have a job at the moment, you may still have an ability to earn. So it’s an evidential exercise, showing your CV and what you can do, and finding appropriate job adverts showing what you would earn,” says Joanna.
Finally, you should get hold of documents that show the valuations for all your assets, such as the family home and your pension, and the cost of all your liabilities, such as mortgages, loans, credit cards and other debt, says Tamsin.
All of this financial information will then be taken into account by the court if it is asked to determine how much you need to be allocated versus your spouse, from the matrimonial pot of assets.
Why you should avoid going to court
“Although it is important to understand how a judge is likely to allocate your marital assets, going to court should be a last resort. If you end up with an overly aggressive family lawyer and in court proceedings which aren’t strictly necessary, you can easily end up spending £50,000 to £100,000 getting divorced,” says Alison Bull, a family mediator and divorce lawyer at Mills & Reeve. “I think the highest cost of a case we’ve litigated in the last year or two has been about half a million pounds in fees.”
Carson recommends gathering as much financial information as you can about your assets, your liabilities, your income and your bills yourself. Then, opt for an “initial consultation” – usually lasting around 90 minutes – with a family law firm. “Get a picture of their advice – and then ask if your partner’s up for mediation,” says Carson. “If there is any negotiation to do, the mediator can help with that.” Costs can easily mount up when you ask one lawyer to argue with another lawyer: “Seek legal advice, but I wouldn’t necessarily use a law firm for negotiations,” she adds.
How to avoid the five most common divorce mistakes
1. Don’t hold on to the family home.
“The most common mistake I see is women wanting to hold onto the house to keep stability for the kids,” says Manisha Thakor, author of MONEYZEN: The Secret to Finding Your Enough. “The problem is, houses cost money to keep up; whereas if in exchange for the house the husband gets the investments – well, those don’t cost anything to hold and can continue growing. Sometimes downsizing is the only way to make the maths work.”
Tamsin says: “Most of the women I’ve worked with desperately wanted, at least in the beginning, to stay in the family home.” This is particularly true of mothers: “But it’s not always the best option to stay in the family home. If it’s a big house, it might cost you more in council tax and energy bills than a smaller home, and put more stress and pressure on your finances. It’s not great if you feel broke all the time – and if things have gone wrong in your relationship, you might find you don’t want that constant reminder of the marriage you had.” Buying somewhere cheaper can free up money to be able to relax and have more fun with your children, and make them happy that way, she suggests.
2. Don’t underestimate the value of your spouse’s pensions.
“There is still a tendency for there to be an offsetting arrangement, whereby the husbands typically keep more of their pension and the wives typically keep more of a house. But actually, pensions increasingly will be the most valuable asset that there is in the family and they’re not always regarded with the level of seriousness that they need to be,” says Alison Bull, a family mediator and divorce lawyer at Mills & Reeve. “Make sure you get the pension enquiry form completed by all pension providers and take advice from a specialist financial advisor or actuary if you need to.”
Quite often, Tamsin says, you need to involve an expert called a ‘Pensions on Divorce Expert’ or PODE, who will review all the pension schemes belonging to you and your spouse, calculate their true value based on your projected income in retirement and provide a PODE report, which a court will use to decide how your pensions can be split fairly. It can then issue a pension sharing order, allowing the pensions to be divided. “Don’t just give away your rights to your ex’s pensions without fully understanding the implications for you and your future,” says Tamsin.
3. Don’t terminate the marriage too soon.
Whatever you do, don’t apply for the final divorce order until your finances are legally sorted out – because at that point, “you will cease to be married,” explains Alison. This means you are no longer your spouse’s legal next of kin and will no longer be the first in line to inherit their pension or their estate if they die intestate. Your ex will also be legally free to remarry. “And if that happens, that can affect what financial claims you can make.”
4. Make sure you get a financial consent order.
Without this, your finances are not legally separated, says Tamsin, even if you have made an agreement between yourselves. Your ex could then come back later on – if, say, an investment you made during your marriage paid off – and ask for a share of the windfall. “You never know what’s going to happen in the future and you need to make sure that everything is formally set out and there can be no comeback later on.”
5. Make sure you review your beneficiaries and insurance policies.
When the divorce is done and dusted, look at the financial protection you have – like life insurance, critical illness cover and income protection – and ensure it is still appropriate. “If you’ve sold the family home, you may find they are no longer relevant,” says Tamsin. You should also review the beneficiaries of your will and your pensions, she says: “You might want to change these from your ex.”
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We are grateful to AJ Bell for partnering with Noon to focus on financial provision for women in midlife
By Donna Ferguson