There are many instances where we generally feel less numerate and financially savvy and we are bombarded with information about 0% credit transfers, ideas for saving for the future in pensions ISA’s or bonds, switching mortgages or energy providers or phone contracts but the realisation that you only understand half of your family finances is never more stark than when people divorce or separate.
It’s fair to say that when a relationship breaks down the initial reaction is emotional, whether you are happy the relationship is over or devastated it has happened. But in the immediate aftermath, the underlying question for almost anyone who is separating is “will I have enough to live on”.
It may feel overwhelming to have to deal with unfamiliar aspects of your finances so below is some guidance and information about the financial impact of divorce and the financial things you will need to think about.
We can help you navigate through this next stage of your life, and for more information, or to make an appointment with a mediator call us on 0300 4000 636; email us on [email protected] or book an appointment
Where to start?
Let’s look at the starting points… The law and the courts take the view that where there is a legal relationship (marriage or civil partnership) then the starting point for financial discussions is fairness and equal division. This is often not the endpoint, as there are a range of things to be taken into consideration such as:
- ongoing needs of any children
- each person’s earning and mortgage capacity
- ability to accumulate a pension, and
- where there are enough resources, any significant contributions of each partner in the relationship.
The starting point is that the needs of the children now are met and then, on the basis that children do better when their parents are happy, that the needs of the parents are met. Sometimes there are not enough resources to arrange things fairly at the time of separation, and parents will make agreements to meet the children’s needs now … and their own at some time in the future when the children are more independent.
Pensions & Divorce
It is important to ensure you include consideration of pensions when you face the end of your marriage or civil partnership. Even though you may be some years away from an age where you can access pension funds, these count as assets, just like money you might have in a bank or savings account.
It sometimes feels tricky to get the correct up-to-date information about the value of your pension, but unless you do, you won’t be able to provide the correct financial information that you need.
A pension can be a valuable asset (sometimes the most valuable asset) that has been built up during your time together. Depending upon the length of your marriage and your ages, you will need to consider your income in retirement.
You will hear the term Cash Equivalent (CE) of your pension. This is the figure that your pension provider will produce when looking at the value of the fund. It is the amount that the pension provider would need to produce if the fund was being transferred from one fund to another. Some pension schemes provide the CE figure when producing their annual statements. It may be necessary to contact your pension provider for the figure. Unless the pension is in payment, the provider has to produce one CE calculation per year free of charge. The not-for-profit website Advicenow provides a useful free ‘survival guide to pensions’ on divorce here.
The end of a relationship can be a stressful and emotionally challenging time, and pensions may be the last thing on your mind. Gerontology expert and Professor of Sociology at The University of Manchester, Debora Price, together with Dr Hayley James of UCD, have created an informative video, giving free and factual information on how to reach a fair financial settlement – which can be viewed here.
NFM clients Terry and Susan Selby are divorcing after 30 years of marriage. Mediation has saved them thousands of pounds by sorting out a problem with their pension that neither of their solicitors had spotted, watch this short video which shows how mediation helped them:
Supporting Children Financially
When parents separate they both remain responsible for the care and financial support of their children. Most parents think it is important for the children’s lives to be affected as little as possible by the separation and for them to have a similar standard of living when they are spending time with each parent. The law takes this view too.
Sometimes this means that one parent gives the other a regular amount of money, known as child support or ‘paying maintenance’, to contribute towards for example maintaining a home with heat and light, providing food, school uniform and other clothes, paying for school materials and out of school activities, and generally ensuring that their health and welfare needs are met.
Because every family has different needs the government thinks it is important that parents negotiate their own arrangements for child support, and provide support to help do this.
You can find out more about family-based arrangements and making arrangements yourself on the gov.uk website. It has resources to help you, including a child maintenance calculator to help you think about calculating how much to pay and, if you absolutely can’t agree between yourselves, find out more about statutory arrangements for paying maintenance.
The statutory Child Maintenance Service (CMS) applies charges to both the giving parent and the receiving parent for this service. For up to date charging information use the links above.
NFM can help you navigate this next stage of your life and help you agree on how your assets will be divided, without the need or expense of going through the courts. Make an appointment with a mediator today by calling us on 0300 4000 636; or drop us an email at [email protected] or book an appointment with a mediator