Divorce can be a challenging process. Even if it’s a joint decision and you have an amicable relationship with your ex-partner, it can be an emotional transition. There’s a lot to navigate, from how to tell those close to you that you’re separating to the way you want to approach co-parenting.
Of all the aspects of a divorce, reaching a fair financial settlement is often one of the most complex stages. It can take time to reach a conclusion, especially if you’ve been together for a long time as you have had years for your lives to intertwine.
Here’s a look at how to approach the financial considerations you need to make now.
Assessing joint assets and liabilities
According to UK law, divorce operates under the principle of fairness. However, fairly dividing assets can look different for each couple. To begin assessing your finances, create a full inventory of what you share with your ex. These are broken down into assets and liabilities.
- Assets
Jointly owned homes – usually the family home you’ve shared with your ex-partner during your marriage – are often the most significant shared asset. You’ll need to decide between you whether you want to sell, keep, or transfer ownership. In addition, if there are any other properties, savings accounts, or investment portfolios, these must be clearly valued and documented.
- Liabilities
Liabilities are another major factor. Understanding any shared debts that you have like mortgages, car loans, and credit cards is crucial as this all plays into how you’ll reach a fair division.
The goal of this process is to ensure transparency, as full financial disclosure is legally required during divorce proceedings. Failure to account for all assets and liabilities can delay settlements and lead to legal disputes. It can also hold up the process.
Working with skilled divorce solicitors can help you get a clear picture of your marital estate, making this part of the process smoother. It may also be worth speaking to a financial adviser to get their input too.
Understanding maintenance payments
Maintenance payments are important in ensuring that financial support continues after separation – especially when there is a significant income disparity between the two. However, in the UK, spousal maintenance is not automatically granted. The courts consider various factors when awarding this, including each party’s income, the length of the marriage, and the standard of living during the marriage.
If you’re a parent, child maintenance takes precedence. This is calculated based on the income of the non-resident parent, and is typically paid until the child reaches 16 or completes full-time education. The Child Maintenance Service (CMS) provides calculators to determine minimum payments, but you and your ex can agree on a higher amount if necessary.
Evaluating pension entitlements
Pensions are one of the most valuable assets in a divorce settlement, but they are often overlooked. Divorce courts in the UK can issue pension sharing orders, which allow a portion of one spouse’s pension to be transferred to the other.
The purpose of this is to ensure both parties retain a fair share of retirement resources – especially if one of you sacrificed your career for caregiving. Therefore, accurate pension valuation is very important. Defined benefit pensions, such as final salary schemes, can be complex to value, so it’s advisable to seek advice from a pension expert or actuary.
Considering tax implications
You might have to transfer assets during the divorce process and there are taxes involved with this process. For example, transferring a property that isn’t the primary residence can mean there’s capital gains tax. Also, spousal maintenance payments may have income tax implications, depending on the structure of the payment.
Early planning with a tax advisor can help address any potential tax liabilities and ensure you time it well.
Planning for the future
Planning your finances for life after divorce for both you and your children is essential. This will establish stability and security.
- Create a realistic budget: This can provide clarity on your immediate financial needs
- Make clear housing decisions: Whether you’re buying a new home or staying in the marital property, you need to ensure that this matches your financial means – especially if you will primarily have custody of your children.
- Look ahead: Long-term planning should include investments, savings, and retirement goals to ensure financial independence and stability.
- Consider future expenses for children: For parents, it’s crucial to factor in education costs and unforeseen medical needs for your child.
From assessing and sharing what you have now to planning for the future, the financial aspects are vital and take careful planning. Seek advice from professionals who can help you as you navigate this complex part of the divorce process.