4 initial financial steps for women to take ahead of “Divorce Day”

As “Divorce Day” approaches on Monday 8 January, discover four initial financial steps for women to take to help them prepare for divorce and plan for the future.

The first Monday in January is known as “Divorce Day” (2 January 2024), as law firms report a huge spike in divorce filings at this time of the year.

If you find yourself facing divorce when the new year begins, one of the most important and empowering steps to take is to prepare financially for your separation.

While it may feel challenging to face such practicalities during this emotional time, taking control of your finances could help you feel more confident and positive about your future.

What’s more, taking the following four financial steps in the early stages of divorce could build a strong foundation for reaching a settlement you feel comfortable with.

1.  Review your finances

Facing a financial future without your ex-spouse or civil partner may feel overwhelming.

Indeed, some or all of your finances may be tied up with those of your ex, especially if you’ve been together for a long time.

What’s more, if your ex-spouse managed the majority of your joint finances, you might be unsure about what assets you hold as a couple or you may lack the confidence to take control of your money.

So, a crucial first step when getting ready for your divorce is to review your finances.

Having a solid grasp of your financial position could help you feel stronger and better able to deal with what lies ahead. It could also provide a helpful starting point for discussions with your financial planner and solicitor about your financial settlement.

You might find it helpful to:

• Write down all the assets and liabilities you share with your ex-spouse
• Prepare a list of your post-separation monthly income and outgoings
• Gather any relevant paperwork and digital documentation.

If you don’t have access to all the details of your joint finances, don’t panic. Highlighting any gaps in the information you have may be an important part of the process as it could help you identify your next steps.

2.  Set money aside to cover legal fees

The cost of getting divorced in the UK can vary significantly based on a wide range of factors, such as whether your divorce is contested or not, and how complicated the financial settlement is.

According to Money Helper (22 December 2023), the average cost of an uncontested divorce where you are the petitioner (the one seeking the divorce) is £1,300 to £2,600. If your spouse is the petitioner, your costs could drop to between £400 and £800.

In contrast, if you fail to reach an agreement with your ex-spouse or partner, you may need to apply to the court for a financial order. The figures published by Money Helper reveal that a fully contested final hearing in court could cost between £25,000 and £30,000 in solicitor and court fees alone.

So, it might be sensible to overestimate your potential legal costs and set this sum aside. This could give you the peace of mind that you’re financially prepared for most eventualities.

3.  Amend key documents

When you’re getting divorced, it might feel like there is an endless list of paperwork to review and update.

Yet, there are certain key documents that you might want to prioritise in the initial stages of your divorce.

Your will

Updating your will may not be high on your list of priorities when you’re going through a divorce. However, failing to do so could mean that if you pass away, your estate is divided in a way that no longer aligns with your wishes.

Indeed, if you take no action to amend your will, its terms will remain valid until your divorce is finalised (when receive your decree absolute). At this point, your will remains in place, but it takes effect as though your former spouse died during your lifetime.

So, if your ex-spouse is named as the sole beneficiary of your estate, it’s likely that your assets will be passed on according to the rules of intestacy. As a result, your chosen beneficiaries could miss out on the inheritance you intended to leave for them.

Instead, by amending your will or writing a new one as soon as you separate, you could take control of what happens to your estate after you die.

Your Lasting Power of Attorney

A Lasting Power of Attorney (LPA) is a legal document that allows you to appoint a person or persons to make decisions for you if you become able to do so. There are two types of LPA: one for making financial decisions and another for making health and welfare decisions.

If you have an LPA that names your ex-spouse or civil partner as your only attorney, then the LPA will lapse when your divorce is finalised – unless you have specified that their appointment should not be revoked in the event of divorce.

If your former spouse was one of multiple attorneys, or you named replacement attorneys, your LPA may continue to function with the alternative attorneys.

However, in both cases, it is sensible to review your LPA as soon as you decide to get divorced, to ensure that it still reflects your wishes. For example, you may want to nominate another trusted family member or loved one to act as your attorney.

4. Seek professional financial advice

While it may be tempting to economise by minimising the cost of professional fees, failing to seek financial advice could be a false economy.

You might be unaware of all the options available to you, which could mean that you end up with a less favourable financial settlement than if you’d enlisted the support and guidance of a financial planner.

For example, research published by Professional Adviser (3 January 2024) has revealed that only 12% of divorces include a Pension Sharing Order (PSO), even though a pension is often one of the most valuable assets a person holds.

What’s more, not including a pension sharing arrangement in a divorce settlement could be particularly detrimental to women who have less on average in their pension pots when they retire than men.

So, seeking professional financial advice could be a crucial step towards achieving the financial settlement you need from your divorce.

As an expert in supporting divorcing clients, I can help you understand your financial situation and explore all the options available.

If you’d like to find out more about how I can help you prepare financially for your divorce and plan for your future, please get in touch by email lottie@truefinancialdesign.co.uk or call 07824 554288.

Please note

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

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

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

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance. 

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.