Finances from separation to divorce
Important information - the value of investments can go down as well as up so you may get back less than you invest. Tax treatment depends on individual circumstances and all tax rules may change in the future. You cannot normally access your pension until age 55 (57 from 2028).
Plan for your financial future
No matter how amicable things are, there are steps you'll need to take to prepare for your divorce or the dissolution of your civil partnership.
This includes showing exactly what you have in terms of assets and liabilities as a couple - your home, cash savings, investments and often overlooked pensions, among others.
While relying on legal advice to understand how you may be affected and what your rights are, we hope this guide on what financial topics could come up during the process will help.
Your budget
To prepare for your divorce you'll need to look at your current income and outgoings to create your projected budget as a single person.
For example, if you're looking to receive a lump sum from your ex-partner but you don't appropriately invest the money, it is likely to devalue over time. It's therefore important to know how long that amount will last you and how to make up any shortfall, if needed.
As part of your budget you could consider the following, among others
- Saving towards your retirement.
- Paying off any debt.
- Creating an emergency fund with enough to cover three months' worth of your normal living costs. Then if anything out of the ordinary happens, such as the boiler breaking, you'll be able to cover the extra expense.
- Taking income protection in case of long-term illness or disability.
- Setting up life insurance so that your financial responsibilities are covered in the event of your untimely death. This includes your mortgage and providing for your children and/or elderly or disabled relatives.
Assets
Assets could include any property, bank accounts, savings, investments, pensions, businesses and joint collections of valuables, such as jewellery, paintings and so on.
Check who owns the family home and what you should do with your legal adviser.
If you have any joint finances, it's worth contacting your provider as soon as you know you're separating so you can discuss what needs to be done. This can include:
- joint bank accounts/loans/credit cards/insurance policies/household bills and so on
- mortgage/rental agreements
- second store cards or credit cards used by your ex-partner
Talk to your legal adviser if you're concerned about your ex-partner selling, transferring or getting rid of any assets, or moving them abroad.
You might need a separate agreement if you jointly manage any investments or accounts for your children.
It's possible there could be tax implications and charges from your providers if you need to share any of your investments with an ex-partner. For example:
If you cash in or sell an investment and make a profit you might have to pay Capital Gains Tax (CGT). There are exceptions, such as investments held in a stocks and shares ISA or disposing of your main residence if you're still living there. You should speak to an adviser if you're not sure. Learn more about your CGT allowance. Under spousal exemption you might not have to pay CGT if you give assets to your ex-partner by the end of the third tax year following the date of your separation (not your divorce/dissolution).
There are assets where income tax may be payable on gains, such as insurance bonds. There is potentially no spousal exemption for those, but they could be transferred to a lower taxpaying spouse to avoid high income tax bills - then split or keep the proceeds.
ISAs can only be held in one person's name and cannot be transferred to another person.
To share money from an ISA you'll need to take the cash out, which means you'll lose the tax benefits. View your ISA allowances.
If you have business interests, the part you own will be taken into account. But this will often involve an overview and valuation of the whole business.
In Scotland it only applies in general to business interests from after you were married. Although they could include any increase in value of pre-existing business interests while you were married.
If you opted for your ex-partner to receive your pension payments or a pension lump sum in the event of your death - known as an 'expression of wish' - you may want to change this.
Aside from your matrimonial home, the pension fund is, for many people, the most substantial financial investment they’ll ever make.
Will, power of attorney and third party agreements
It's important to update your will, power of attorney and any third party agreements, as soon as you start seriously considering ending your legal partnership.
Unless you alter it, your will remains valid until your divorce is finalised and even then some details could still stand following divorce.
With third party ageements granted to providers of goods and services, your spouse can discuss, transact or obtain information without you being present.
Updating your details
If you claim any benefits, you'll need to report your change of circumstances so you keep getting the right amount.
If you have any work benefits where you have added your ex-partner as a beneficiary you might want to update these. This can include health insurance or death-in-service benefits.
Take control of your finances
Saving into an ISA
Open a SIPP
Personal financial advice
Ready to retire?
Explore what you can do to set up your financial future after your divorce is finalised.
Important information - this information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity's advisers or an authorised financial adviser of your choice.
