Divorce can be an emotionally challenging time, and the financial implications may appear daunting. Whether you’re considering divorce or have already begun the process, seeking advice from a solicitor to navigate the financial issues associated with divorce can be invaluable. Director and Divorce Solicitor Rachel Buckley shares some of the key financial considerations are set out below.
1. Legal Costs
One of the most immediate financial burdens in a divorce is the cost of legal advice and representation, whether you are paying privately, or are eligible for legal aid and need to factor in repayment of your legal costs to the Legal Aid Agency at the end of your matter (the Statutory Charge). However, where the voluntary exchange of disclosure with your spouse is suitable in your circumstances, the benefit to you in instructing a solicitor who can oversee this process and negotiate on your behalf to achieve a favourable and fair settlement outcome, is likely to be valuable. It is also important that you instruct a solicitor to ensure your agreement is drafted correctly into a Consent Order and filed with the Court to be legally binding.
Additionally, there may be costs associated with mediation, court fees, representation at Court (where proceedings are issued), and hiring financial experts to assess significant assets and liabilities, where relevant.
Tip: To minimise costs, consider alternative dispute resolution methods such as mediation to reach agreement on settlement by consent which can then be finalised by your solicitor, which can be less expensive than going to Court.
2. Division of Assets
The division of assets is often one of the most contentious aspects of a divorce. Information about the individual and joint finances, from the family home to pensions, must be disclosed to one another and to the Court, and decision as to distribution can be discussed and agreed. Where agreement is not possible, an application to the Court for financial proceedings may instead be necessary.
In reaching a settlement outcome, specific relevant factors – including the needs of the individual parties and any children of the family – will be considered, so that whilst assets acquired during the marriage may typically be split 50/50, a departure from equity in the favour of one party may be appropriate. Other factors such as the contributions of each party, the ages and earning potential of each party, and their ability to rehouse themselves, are also relevant, so that the allocation and eventual settlement may not necessarily be equal but should be based on what is considered fair.
The equitable distribution of the assets can be effected in a variety of ways, such as via lump sum provision, transfers of property, pension-sharing, spousal maintenance or off-setting of assets.
The process or disclosure and negotiation can be particularly difficult if one spouse handled the finances, and the other is less knowledgeable about their financial situation. Moreover, certain assets, such as businesses, shares, pensions and property can be hard to value and divide, potentially leading to further disputes and delays. The guidance of a specialist solicitor to navigate this process and to ensure the settlement terms are drafted correctly and included in a financial order is advised.
Tip: Obtain a clear understanding of all marital assets and debts early in the process. Working with a financial advisor and divorce solicitor can help ensure a fair and thorough division.
3. Impact on Income
Divorce can significantly impact your income, especially if you were reliant on your spouse’s earnings to any extent. Going from a dual-income to a single-income household can be a major adjustment. In some cases, one spouse may be required to pay spousal maintenance to the other. Where one spouse has a lower capacity to take out a mortgage, property adjustments and lump sum orders may be made in such a way to assist that party to more suitably and affordably re-house themselves in the future.
For parents, child maintenance can also be a significant financial consideration. The paying parent may find that their disposable income decreases substantially, while the receiving parent may need to budget carefully to ensure that the support covers the costs of raising a child.
Tip: Consider re-evaluating your budget and lifestyle to reflect your new financial reality. If necessary and available to you, consider seeking additional sources of income or adjusting your career plans.
4. Impact on Retirement
Divorce can impact your retirement plans. Pension plans are often among the largest assets to be divided during a divorce and may need to be equalised to provide fairly for both parties upon retirement. It is wise to commission a pension expert to assess the pensions of both parties and to produce an expert report which factors in the ages, earning potential and anticipated retirement ages of the parties, and which includes carefully calculated projections as to future fund valuation. It is also important that the terms of any division of pensions be drafted into an appropriate pension-sharing financial order for the Court’s approval which can then be implemented by the pension fund provider.
Where a pension-sharing order is implemented, this is likely of course to reduce the retirement savings of one or other party, which may require a reassessment of retirement goals and timelines. The party who is receiving a portion of their spouse’s pension should also consider getting advice on the transfer into a suitable pension fund in their own name.
Tip: Review your retirement plan and consider working with a financial advisor to adjust your strategy if necessary. You may need to increase your savings or pension contributions, delay retirement, or explore other retirement income sources.
Summary
Divorce is a life-altering event with far-reaching financial implications. By understanding the potential challenges and taking proactive steps to address them, you can better navigate the financial complexities of divorce and protect your long-term financial health. Whether through careful budgeting, seeking professional advice, or simply educating yourself about the process, the key is to stay informed and make decisions that are in your best financial interest.
Navigating the financial landscape of divorce may be challenging, but with the right strategies in place, and the advice of an experienced family solicitor, you will be better equipped to emerge with a solid foundation for your future.
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