3 overlooked financial vulnerabilities your divorcing clients could be exposed to

Financial vulnerability is something that many divorcees, particularly women, experience. Learn three vulnerabilities that could affect your divorcing clients.

While the word “vulnerable” can be applied to people from all walks of life, it is rarely used to describe divorcees.

Yet when a person gets divorced, particularly if they are a woman, they could experience several financial vulnerabilities that are often overlooked – even by professionals who often work with divorced clients.

With this in mind, keep reading to become aware of three overlooked financial vulnerabilities that your divorcing clients (particularly your female clients) could be experiencing.

1. Making emotionally driven decisions

In the midst of divorce proceedings, it is likely that your clients will experience some financial anxiety.

Legal fees and the division of valuable assets, along with the loss of a partner’s regular income, could lead them to feel financially overwhelmed at this time. As a result, your clients could make emotionally driven financial decisions, rather than looking at the data they need to make informed choices.

If your client is worried about money during their divorce, they could let this worry inform their decisions, including:

• Cutting or stopping their pension contributions, potentially dampening their future retirement stability
• Jumping into a house move unnecessarily, creating further instability within the family unit and perhaps costing more than staying put
• Panic-selling a portion of their investment portfolio to improve cashflow, which could mean crystallising losses
• Taking out high-interest loans without considering the long-term effects of doing so.

This is where your clients, particularly women who may be worse off after divorce than their ex-spouse, could benefit from lifestyle financial planning.

I can work with your clients to mitigate emotional decision-making by:

• Using cashflow modelling software to take a detailed, data-driven view of their financial circumstances over the long term
• Looking at ways to reduce their tax liability and make their money go further
• Creating a financial plan that puts their most treasured goals at the heart of the conversation, while covering the basics to help ensure financial stability throughout their lives.

Addressing potential vulnerabilities with your divorcing clients could help to prevent emotional decisions that are often irreversible.

2.  Forgetting to update important documents

Your divorcing clients have a lot on their plate. While understandably focusing on their family’s wellbeing, their own health, and the immediate to-do list in front of them, they could put crucial financial tasks on the back burner.

One task that divorcing individuals often forget to do is updating important documents that pertain to their finances.

Here are a few crucial documents that need to be updated during the divorce process.

Will

If your client has a will, this needs to be updated when they separate from their spouse, to reflect their intentions should they pass away.

This is crucial because if your client dies unexpectedly, and they are technically still married to their spouse, their entire estate may pass to them even if they are living separately.

On the other hand, if your client does not have a will, creating one during the divorce process could be an essential step that ensures their wealth is passed on to their intended beneficiaries.

Lasting Power of Attorney

There are two types of Lasting Power of Attorney (LPA): health and welfare, and financial.

Both types allow a nominated attorney to make decisions on your client’s behalf if they lost mental capacity due to illness or injury.

If your clients have existing LPAs, the chances are that their spouse was named as an attorney. Now that they are going through a divorce, they may need to alter these documents and name a new attorney, such as an adult child or sibling.

Financial protection

Your clients and their ex-spouses could have joint financial protection, such as life insurance, or a single-person agreement that is designed to pay a lump sum to their spouse upon death.

In either case, it is essential for your clients to update their financial protection during a divorce – but this task is often forgotten in the flurry of administrative activity they experience when divorcing.

Some protection agreements could even be nullified if the provider is not notified of their change in circumstances after a certain time period.

As an independent financial planner, I can conduct a thorough review of your clients’ financial documents during or after divorce.

This may help ensure that they are thoroughly protected and that all the information in their financial documents is correct, enabling them to focus on their family’s wellbeing during a difficult time.

3. Underestimating crucial assets during the division of wealth

When it comes to dividing assets during a divorce, your clients have likely expressed that they “just want to get it over and done with”.

While this is an understandable feeling to have, agreeing to an unsuitable division of assets simply for the sake of efficiency could harm your clients’ future financial stability.

For example, aside from their home, a client’s pension could be the most valuable asset to their name – yet many people avoid discussing their pensions during aa divorce. You can read my insights  into how divorce can exacerbate pension inequality on my website.

This is where financial planning can be so valuable to your divorcing clients, particularly women who often draw the short straw during the division of assets.

I can help your clients ensure that they make the most of their settlement by creating a bespoke, data-driven financial plan that helps them focus on the path ahead after a difficult period.

Get in touch to learn about how financial planning could help your divorcing clients

According to research published by PensionsAge (7 February 2024), fewer than 7% of divorcees consult a financial planner during their separation.

Yet as you’ve read here, there are so many upsides to working with a financial planner during and after a divorce, and to remaining in a close partnership for many years afterwards.

If you have clients who could benefit from working with a female financial planner who understands their needs, email lottie@truefinancialdesign.co.uk or call 07824 554288.

As a new mummy, I will be on maternity leave until July 2024, so I appreciate your patience until I am back at my desk.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate estate planning, cashflow planning, tax planning, Lasting Powers of Attorney, or will writing.