Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
January has the dubious honour of being ‘divorce month’. In fact, the first working Monday after the new year is often dubbed ‘divorce day’ – when lawyers say they see a spike in calls about divorce, and Google searches for phrases like ‘how do I get divorced’ apparently spike.
This makes sense, because new year is often a catalyst for people to take stock of their personal situation and perhaps bite the bullet on something they’ve been considering for a while. The financial and emotional pressures that Christmas can bring can also widen the cracks in an already unhappy marriage.
In a divorce it’s very easy to focus on the practical side of things – and children, if they’re involved, will of course be a massive part of that. But if you’re facing a divorce, it’s really important to focus on the financial side too, because it can have a significant impact on your future wellbeing.
Our research* finds that people who’ve been divorced are more likely to be financially independent in their new relationships – perhaps because they’ve been burnt before. For example, 20% of women overall say they have savings their partner doesn’t know about, but if we look at divorced women only, it rises to 24%. Similarly, 32% of women overall say someone else makes the major decisions about their finances, but only 25% of divorced women.
We spoke to Fiona Sharp, a chartered financial planner at Verve Financial and who specialises in giving financial advice to people getting divorced, to get her top tips.
Tip one: Don’t ignore anything
Fiona’s main advice is to consider every aspect of your finances when agreeing a financial settlement. All too often, people are focused on their house and keeping their property, which is entirely understandable if there are children involved you don’t want to uproot. But it’s a mistake to focus on it to the exclusion of other things. ‘In particular, take account of pensions if you can,’ Fiona says. ‘If you have children, you’ll want to concentrate on having a good home, but you need to keep an eye on your long-term financial planning as well.’
Tip two: If you’re not comfortable with the people you’re working with, then change
Divorce is an often long and always emotional process, so it’s important you’re confident in the people you’re working with. ‘If you’re not happy with your financial adviser, lawyer or mediator, it’s okay to find someone you feel happy with,’ Fiona says. ‘Divorce is traumatic enough without feeling you’re not getting support from professionals.’
Tip three: Pick the right month
This one feels a bit more bizarre, but Fiona is certain it makes a big difference. Technical tax rules mean that it’s more beneficial to get divorced at the start of a new tax year – which is 6 April – than other times. Obviously, if you’re not on amicable terms with your partner or have any worries about your safety, this rule can be disregarded. But if you have more complicated finances, including owning any investments, shares, rental property or other assets beyond the family home and a pension, it’s worth considering.
‘You can transfer assets between spouses for capital gains tax purposes in the tax year of your separation,’ explains Fiona. ‘That means if you divorce in March, which is only a month before the new tax year, you may only have a few weeks to resolve your situation.’
Tip four: Get informed
Divorce is complicated, and there’s lots of technical jargon involved at what is likely to be an emotionally draining time. Fiona recommends some good resources: ‘There’s a really good website called AdviceNow, which has a range of guides in plain English and covering lots of technical aspects. And Resolution is a good source of information for all aspects of divorce, and is where you can find the right professionals.’
*Research based on an independent survey of 5,000 UK adults conducted for the AJ Bell Money Matters campaign by Opinium between 26 and 30 August 2021.
Listen to this week’s Money Matters podcast episode for more great advice on divorce from Fiona.
These articles are for information purposes only and are not a personal recommendation or advice.