Implications of Divorce

An early consultation with a financial planner can give you a better understanding of your financial options and help you negotiate a more favourable settlement. Divorce typically involves coming to an agreement about various assets to create a fair division that addresses both your and your ex-partner’s requirements while also making good financial sense. A common and understandable question when going through a divorce is, if you'll have enough money in the future. It's not an easy question, but a financial planner can help by using cashflow modelling to give you an idea of what your financial life might look like. Cashflow modelling puts a monetary value on what you have now and what you might have in the future. Then, it checks this against what you're likely to spend over your lifetime to see if there is a shortfall. Cashflow modelling considers your unique situation and can explore various scenarios to assist you in making optimal decisions. This may include determining the financial viability of retaining your previous marital residence or evaluating the potential benefits of pension offsetting. This tool proves highly effective in guiding you both during the pre-divorce settlement phase and in planning for your future post-divorce. Crucially, it can provide reassurance during a potentially uncertain period in your life.

 Divorce & Pensions

When going through a divorce, pensions can be one of the most valuable financial assets you have. So, it's really important to consider them when you're working out your divorce settlement. This is an area where seeking good

financial advice early on is a smart move.

There are three main ways pensions are handled during a divorce

  1. Pension Adjustment Orders: This splits the pensions between the divorcing couple. You get a portion of your ex-spouse's pension or vice versa and decide what to do with it. This gives a clean financial separation. The given amount is known as a pension credit, usually a percentage of the pension's value, and it can be moved into a new or existing pension scheme.  
  2. Pensions Offsetting: Here, the value of a pension is balanced against other assets in the divorce settlement. For example, one person might keep their substantial pension while the other keeps the marital home. This method can be tricky as it's not always easy to divide assets fairly, and one person might end up with no pension in the end.  
  3. Pension Earmarking: This involves directing part or all of the pension's benefits to the ex-spouse when the pension is paid out. This happens through a court order. In this scenario, there's no complete financial separation.

Tax

The amount of income tax and capital gains tax that you will be required to pay now and going forward with your new life will change with your marital status. This is a highly intricate area, but a financial planner can offer guidance to help you arrive at an arrangement that benefits both parties.

Business Assets

Business Assets in Divorce Business owners might not realise that even an ex-spouse who had nothing to do with the business could be entitled to a share in a divorce. Courts usually treat all assets equally unless there's legal proof otherwise. Courts try to avoid disrupting a business, but sometimes they decide breaking it up or selling it is the only way to divide assets. This can have serious financial consequences for business owners. Divorce might also lead to one party buying out the other. A financial planner can help you understand your options and make wise choices about your business during a divorce.

Savings and Investments

Savings and Investments: Just like pensions, all savings and investments are usually considered in a divorce. Dividing savings and investments is often simpler than dealing with pensions, but there are tax implications and charges to think about, so getting financial advice is a good idea. Remember, tax rates and reliefs are based on individual situations and can change.                  

 

Citizen Information

Separation, divorce and dissolution

Court Service

The Divorce Process

The Pensions Authority

Pension Adjustment Orders

Frequently asked questions about finances and divorce

Working together to build a stronger future

Should I stay in the family home?

When going through a divorce, many people's initial instinct is to hold onto their home, especially if there are children involved. However, it's important to understand that keeping the home might not always be the best financial decision. A financial planner will explore whether keeping your former marital home is truly the right choice for you and your family. For instance, imagine someone getting a divorce who wants to keep the family home. But there's still a substantial mortgage to pay off. After discussing with a financial planner who has used cashflow modelling, it becomes evident that the cost of the mortgage and household expenses matches their income. Any additional costs would have to come from other investments, which are expected to gradually decrease over the next few years. In this case, it might actually be more financially sound to sell the property and buy something more affordable. This move can reduce both personal and financial strain.  

What happens when children are involved?

In the context of divorce, when there are children in the picture, their emotional well-being isn't the only aspect that matters; the financial implications also need consideration. This often extends beyond deciding whether they should continue residing in the former marital home. Child support might be necessary, encompassing general upbringing costs or specific expenses such as school fees. Occasionally, establishing a trust might be essential to safeguard the children's interests.Moreover, protection against severe illness or death becomes crucial in this scenario. When child support is reliant on one parent's income, it's easy to overlook the necessity of safeguarding that income in case the provider passes away or becomes seriously ill. The absence of protection could place the surviving parent at unwarranted risk and potentially compromise the child's quality of life.  

How can a financial planner assist me during my divorce?

After your divorce, you'll be entering a new phase of life, and it's likely that your finances will need a restructuring to fit your changed circumstances. A financial planner understands that to take charge of your financial future during or after a divorce, is crucial to make well-informed decisions based on a clear understanding of your needs. With the guidance of a planner, you'll develop a plan for your new life. However, this plan isn't set in stone; it's adaptable – this is where the ongoing relationship with a financial planner truly shines.

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