The first working Monday of the new year has long been wryly dubbed “divorce day” by family lawyers, who typically see a spike in the number of people contacting them about starting divorce proceedings.
Of course, some don’t wait until then. The new online divorce system, which enables spouses to file for divorce on the HM Courts & Tribunals Service website, saw 13 file for divorce on Christmas Day itself. The latest data shows that 455 applications were submitted between Christmas Eve and New Year’s Day.
Unravelling your lives and especially your finances is a daunting task, but there are three key areas to take special care of as soon as divorce becomes a reality.
Getting to grips with your joint finances is essential. Collect together all the paperwork you can find so you have a sound overview of what you both have as early as possible. That will put you in a stronger position and enable you to know what you need from the financial separation. You’ll find that having all the facts and figures at your fingertips will prove invaluable if you need to negotiate with your estranged spouse, or if matters end up going to court.
Check your pension
Pensions are a crucial part of your future financial security. But too many people focus on the family home and neglect to see what share of the pensions they could be entitled to on divorce.
If and how pensions are divided on divorce depends on your circumstances and it’s a complicated area. But most pensions can be divided by a court order, through what is called a pension sharing order. There needs to be a decree absolute and a formal court order for a pension sharing order to take effect.
Once shared, that spouse will then be entitled to the benefits of the pension completely independently of their ex. And those rights won’t be affected by the death of the former spouse either now or in the future.
Contact your pension provider to find out what you could be entitled to and make any necessary changes to payments into your pension fund. You might want to delay further contributions until you know whether your estranged spouse will be entitled to a share. You might want to transfer or consolidate pensions into one pot so you know what you have at a glance, although you should seek advice before doing so. Don’t forget to check your state pension entitlement too.
Questions to answer before negotiating a divorce settlement
- When are you likely to want to retire?
- What is the earliest date that you can take the pension?
- What lump sum and /or income will you each be able to get from your existing pensions in retirement?
- How much do you need /what is your expected cost of living?
- Are there any other savings that you have that can be used to meet your retirement needs?
Review your savings and investments
Unravelling the various savings and investments you both hold can be tricky. It’s rarely as simple as just dividing them equally.
Joint holdings and investments will have to be closed and the proceeds shared. This will incur charges if there are shareholdings to sell and, of course, costs again when you come to reinvest your share of the proceeds. However, this also gives you an opportunity to reassess and rebalance your savings and investments.
Change your Will
As soon as you start seriously considering divorce you should update your Will to ensure your wishes are made clear. You don’t need to wait for the decree absolute which ends your marriage. It’s a very good idea though to also write a “letter of wishes” that sits alongside your Will and makes clear what you want to happen in your current circumstances.
It might seem like one piece of bureaucracy you could do without, but updating your Will is very important. If you don’t - or don’t have one in place - and you die before your divorce is finalised, your surviving spouse could end up managing your estate and could end up with 100% of your property - even if you don’t intend for that to happen. But it can, even if you’re separated and even if you’ve already made it clear that you want to end the marriage.
Even divorce itself does not automatically make your Will void, invalid or revoked. What happens instead is that the decree absolute makes it as though your former spouse had died on the date the decree was issued.
If you had previously left everything to your ex-spouse, leaving your Will un-updated after divorce is the equivalent of dying intestate. That’s because any gifts made to a former spouse will become ineffective and fall back into residue for the benefit of your other beneficiaries. It would then be left to your executor - or whoever was appointed in place of your former spouse if they were named as executor in your Will - to work out who should get what.
So while failing to amend your Will will mean your ex will no longer be automatically entitled to anything in your Will, which may well be what you want, it could also mean your other wishes are void too. If, for instance, you do still want your former spouse to be the trustee of a trust for the benefit of any children, you need to amend your Will to set out your wishes post-divorce, or it won’t necessarily happen.
By making the changes yourself you can ensure that your wishes are carried out.
The value of investments and the income from them can go down as well as up and investors may not get back the amount invested. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment. Fidelity Personal Investing does not give personal recommendations. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.
Live the life you want
When it comes to the big things in life, preparation matters – and we’re not just talking savings. We’ve pulled together lots of ideas to help you get ready.