10 Financial Planning Tips For Divorce
- Emergency budget: Your first priority is damage limitation. Ita��s incredibly common to start running up debts after a split, because you are dividing the same income between two households a�� whilst at the same time paying for what can be an expensive process. It makes sense to draw up an emergency budget to cut your expenses as much as possible during these first difficult months.
- Freeze accounts: Youa��ll need to make decisions on joint financial arrangements for the short term. Banks can freeze the assets in joint accounts, or make arrangements so that you both have to agree to any money being withdrawn. Similarly they can place controls on debts to prevent either of you from abusing joint arrangements. If you are being paid directly into a joint account, arrange for the money to be paid elsewhere, and if there are bills, rent or the mortgage coming out of it, youa��ll need to arrange an alternative way of paying these.
- Try to agree things between yourselves: There will usually be assets and debts to divide. There may also be children, in which case you will need to agree who they live with, access, and maintenance. As soon as lawyers get involved, you will typically pay over $400 (about AED1,500) an hour for their services, so the less they do, the less it will cost you both. Try and agree what you can without a lawyer in the room.A�
- Consider mediation: If you end up going through the courts, it can be a long and expensive process, and there are no guarantees, so it may make sense to employ a professional mediator, who can bring an independent third party to the process at a lower cost.
- Understand the value of what you have: Couples often offset assets, but ita��s important to appreciate the value of what you are giving up and what it will cost to replace it. Someone forgoing a Pension for the liona��s share of the property, for example, needs to understand what they are trading. An Independent Financial Adviser will help more than a lawyer here.
- Dona��t forget Pensions: In many cases, ita��s one of the largest assets built up during the marriage a�� often largely in the name of one person. You have a few options as to how to split it: Pension Sharing divides it into two separate Pensions; Pension Offsetting trades it off against the value of other assets held by the couple; deferred Pension sharing arranges to share the Pension at a later date; and, a Pension attachment order pays an income or lump sum to the other member of the couple when the Pension holder starts taking their Pension.
- Redo your Will: Divorce nullifies any Wills, so you need to make a new one as quickly as possible to ensure your estate will be divided according to your wishes.
- Build up your short-term savings: Divorce is expensive, so is likely to have eroded your cash reserves. One of your first priorities afterwards, therefore, is to build up a lump sum in an instant access savings account to cover emergencies.
- Review your Protection: Think about your new protection needs. If youa��re paying child maintenance, you will need Life Insurance to cover payments in the event of your death. Likewise, if youa��re receiving spousal maintenance, you will want Life Insurance to cover your exa��s life. You may need to change your nomination of beneficiaries for your Pensions and work based death-in-service benefits.
- Revisit your overall position: After a divorce you will need to revisit your longer-term savings and investments too, and review the damage done. You may well need to rebuild your portfolio or your Pension, and rethink your plans for retirement, so the sooner you start, the better. Greg Pogonowski said: a�?The potential cost and distress involved in a divorce means in many cases ita��s worth considering a pre-nuptial agreement before you get married. These lay out what will happen to your assets in the event of a split, and can help protect assets brought into the marriage. This may be particularly important if either of you have children from a former relationship and you want to protect their financial position. Pre-nuptial agreements are not legally binding in many countries, but as long as they are reasonable, properly negotiated, and everyone has been legally represented, the courts will to take them into consideration.
I dona��t know if it is the season, but I have recently been asked to advise in a few divorce cases, so here are my Top 10 Tips