21/08/2024 by Lottie Kent 0 Comments
4 urgent financial matters your clients need to consider when getting divorced
The financial aspects of getting divorced may feel overwhelming, but prioritising these four urgent financial matters could help your clients gain a sense of control.
It took actors Brad Pitt and Angelina Jolie seven years to even begin splitting their combined assets after separating, due in part to ongoing disputes over a French vineyard and chateau. In fact, their divorce is still pending after eight years.
Hopefully, your divorcing clients won’t need to wait quite as long to reach a formal financial settlement, but the process could take some time. In the meantime, they may need to address certain financial arrangements before they officially separate.
When your clients are juggling the practical and emotional demands of a divorce, prioritising which money issues to tackle first and understanding how to do so could feel overwhelming.
So, here are four urgent financial matters your clients might want to bump to the top of their to-do list when getting divorced, in order to help them take control.
1. Paying for ongoing childcare
If your clients have young children, childcare costs could take up a hefty chunk of their household income.
For example, 2023 research conducted by Coram and published by MoneyHelper found that in the UK, the average cost of sending a child under the age of two to nursery on a part-time basis was £7,210 a year. This went up to £14,030 a year for full-time nursery care.
Additional figures released by Coram, published in the Guardian (19 July 2024) also reveal that childcare costs in the summer holidays alone could exceed £1,000 for children aged 4 to 14.
While your clients may be able to claim some tax-free childcare from the government, the remaining costs could be significant.
So, if you have divorcing clients with young families, they’ll need to agree on how to share the cost of childcare.
Indeed, in the immediate aftermath of a separation, your clients’ childcare costs could increase. For example, if a client provided full-time care for their children during the marriage or partnership, but they now need to return to work, there may be additional childcare costs to cover.
It’s important that your clients get a clear picture of what their childcare needs will be after the separation. This way, they can reach an agreement with their ex-spouse about how to share the associated costs.
If your clients are struggling to reach an agreement, a financial planner can act as an objective mediator and help them create a plan that meets both parties’ needs until the divorce is finalised.
2. Keeping up with mortgage repayments
If your client and their ex-spouse have a joint mortgage, they’ll need to quickly decide how they’ll keep up with the repayments during their separation, to avoid falling into arrears.
Your clients’ divorce settlement will determine what happens with the property in the long run – for instance, one party buying the other out. But in the short term, they’ll need to agree on how they’ll manage the mortgage until their divorce is finalised.
If a client and their ex-partner are both named on the mortgage, they are jointly responsible for making repayments. However, depending on how they split the household costs as a couple, your client might need to make certain changes to how repayments are made and how much each partner contributes after their separation.
For example, if one person remains in the family home and reduces their work hours to be the primary carer for their children, their ex-partner may agree to increase their contribution to the mortgage, to compensate for the resident parent’s lost earnings.
3. Reviewing personal protection needs
It’s likely that your clients’ protection needs could change when they get divorced, especially if they’re planning to live alone.
So, it’s essential that they review their needs to ensure they have sufficient cover to protect themselves and any dependants they have.
For example, your clients might decide to take out income protection to ensure they can cover essential costs if they become unable to work due to illness or injury. As the sole earner in the household, the risk of income loss due to illness may feel more immediate than when they had a second income to rely on.
Your clients will also need to review any existing policies that they share with their ex-partner. Insurance policies won’t change automatically when a couple divorces, so your clients will need to contact their provider to make any necessary changes.
For example, if they have a joint life insurance policy, this can’t be divided upon separation. So, one person will need to take it over or the cover will need to be cancelled. Your clients might then want to consider taking out their own cover as soon as they can.
4. Revising estate plans
It’s important that your clients review their wills as a matter of urgency when they separate, to ensure it reflects their current wishes.
Failing to update a will during a divorce could mean that your clients’ estates pass on to unintended beneficiaries when they die. What’s more, in certain circumstances, a client’s ex-spouse could make a claim for financial provision against their estate under the Inheritance Act – updating their will could prevent this.
What’s more, it may be helpful for clients to review their potential Inheritance Tax (IHT) burden with the help of a financial planner. Once the divorce is finalised, their entire estate is likely to pass to their children rather than their spouse, potentially incurring a higher IHT bill.
While many clients may put their estate plans on the back burner during a separation, addressing these matters urgently could be prudent.
Get in touch
If you have clients who are getting divorced, I can help them take control of their finances both in the short and long terms.
Please ask them to get in touch by emailing me at lottie@truefinancialdesign.co.uk or calling 07824 554288.
I am also happy to discuss cases with solicitors first, before you refer your clients to me, or you can contact me by email and CC your client accordingly. I am happy to accommodate whatever mode of communication works best for you and your clients.
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