National Divorce Day: get up to speed on your finances before you leap
Today is National Divorce Day – the first working Monday of the year after the festive period usually sees a rise in disillusioned couples consulting divorce lawyers. Co-op Legal Services said that it sees a burst in enquiries over January, with a second peak in March.
Divorce can be financially ruinous. Adults who are divorced or separated are twice as likely to have no savings or investments compared with those who are married (32% vs 14%), according to Zurich. On top of that, money can be a cause of marital strife in the first place: a survey by law firm Slater and Gordon found over a third of respondents (37%) said financial pressures were the biggest challenge their marriage faced.
Sophie Kilvert, relationship manager, Seven Investment Management (7IM) said those contemplating divorce need to protect themselves: “Two things stand out to me in divorce cases. Firstly, while it’s quite common for one person to be in the driving seat when it comes to family finances, if you are not that person it’s important that you ‘know enough’ in case of a change in circumstances.
“Not only is it important to be in a position of knowledge about where and how assets are invested when financial settlements are being arranged, it is also important to have a reasonable level of financial literacy for the next chapter in your life. A ‘running away fund’ is not a bad idea, either. Even if everything in the garden is rosy, and the money is simply intended to help fund secret gifts and treats, I’ve had clients express relief that they kept some money separate, as it has made it easier to move on.”
Peter Hamilton, head of strategic partnerships at Zurich, gives his five tips for shoring up your finances in the event of divorce.
1. Protect your credit score
You’ll be surprised at how many financial products and agreements you share with your ex-partner, from mortgage and credit card payments right down to utility bills. The longer you have been together, the more tightly wound up even your basic finances will be. Your credit report will list the details of every financial agreement you have, and this will help to protect your credit score from unexpected payments on the part of your former spouse. You need to build up your own, independent score and improve your rating if needed to ensure you don’t get turned down for any future loans.
2. Close joint accounts and open new ones in your name
Likewise, it’s important to make sure that all joint credit cards and accounts are closed, paid off in full or, at the very least, changed to either your name or that of your former partner’s. Not doing so could complicate matters, or could even lead to them using your accounts, running up debt or using your savings. This could have a negative impact on your future financial profile.
3. Think about your pension
If you have just been through, or are currently going through, a divorce then a pension is probably going to be the last thing on your mind. However, after the family home, a pension can actually be the biggest asset at stake, so protecting this in the first instance is crucial. This is particularly the case for women who may depend on their husband’s provisions. Consider how else you can build up sufficient retirement savings – such as investing in a stocks and shares ISA over the long-term – and speak to an adviser about how to protect the assets you do have.
4. Don’t forget about your protection needs
If you already have life cover in place in the form of a joint policy, make sure you check the policy terms. Some include a ‘Joint Life Separation Option’, which means that the contract can be amended to cover both parties individually. Many policies also contain options which allow you to increase the amount of cover you have following life events, including divorce or separation, without needing further underwriting. You may want to consider increasing your cover if you have had to take on a new or larger mortgage or other debts.
5. Update your will
Now that you are divorced or separated, your existing will is unlikely to be appropriate to your new circumstances. Make sure you update this as soon as possible to ensure your wishes are followed. The first step in this process is to consider what assets are yours to pass down, and then to decide how you want these to be distributed – for example, you may have a new partner you want to include.