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Dealing with divorce: tips for a smooth financial separation

Written by: Michael Copeland
Find out what happens to your assets, debt, savings and pension in a divorce.

Agree on assets

During a divorce it is a legal requirement for both people to disclose the value of all their assets, commonly known as full disclosure. This covers income, savings, investments, property, pensions and any other assets. Something many people do is not to clarify the value of their assets. If you are unsure on the value of an asset seek a third party valuation and avoid rough estimates.

Once everything has been outlined it is best to try to reach an agreement on as many financial assets as possible – doing it via a solicitor can add further expense.

Divide debt

As a couple you may have joint loans, credit cards and a mortgage and just as you need to agree and divide assets, you also have to do the same with any outstanding debts. A trap some people fall into is thinking they won’t be liable for debts. With any joint loans you will both still be liable for any outstanding figure and failing to pay it could affect both parties’ credit ratings. Agree with the other party how the debt will be paid and put arrangements in place.

It’s key to avoid running up new debts during a divorce too. While the focus is on short-term survival, don’t ignore any bills that come in. They can quickly rack up and add more costs further down the line. To avoid falling into debt, prioritise what you need to pay first, be it rent, mortgage or bills.

Think long-term

Avoid short-term decisions that could affect your long-term finances. It might seem an easy decision to take money out of long-term savings or deferring pension payments to free up cash for immediate needs but this could leave a gap in long-term savings and pensions,

reducing your future retirement income. Once everything is settled it is a good idea to try to repay yourself.

Plan your pensions

For many people their pension will be their biggest asset after the family home and it should be divided during the proceedings. It’s easy to think this is as simple splitting the pot. A pension’s value in retirement could be much more significant than its current value and people need to consider this.

Pensions can be split a number of ways including pension offsetting and pension sharing. If one of the parties is already retired the rules will be different again, so it is important you seek advice about the possible outcomes to make sure everyone gets a fair result.

Get advice

Finally, get in touch with a trusted financial adviser. It sounds obvious but just as you’d seek legal advice for matters of the law it is important to seek financial advice from a professional too. All too often people rely on their solicitor for financial matters, which isn’t always their area of expertise.

From dividing assets to managing family commitments, getting divorced is a difficult time, but having an understanding of how to handle a smoother financial separation can help to make it a little easier.

Michael Copeland is senior area manager at Wesleyan

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