Sadly, the skyrocketing cost of living might have an unforeseen consequence for some married couples. According to research by Royal London, money is the number one cause of arguments.
Given the difficult economic realities of 2022, this could lead to some marriages failing. If yours is one and you’re going through a divorce, you’re probably seeking legal advice, which is sensible. What you may not have thought of though, is the need to also talk to a financial planner.
This is because planners can help ensure you understand the marital assets and what a fair settlement should look like, particularly when it comes to issues like pensions. As a result, working with a financial planner could help you achieve financial independence and the lifestyle you want after your divorce.
Read on to discover more.
A financial planner will help you understand the value of your marital assets
While the family home is typically seen as the largest marital asset, it could in fact be your ex-spouse’s pension. Data from the Office for National Statistics shows private pensions represent a greater share of wealth than property, despite house price increases in recent years.
Furthermore, if you and your ex-spouse have investments, a financial planner could help confirm their value.
A planner will help ensure pensions are split fairly
According to research by the University of Manchester, women typically have significantly smaller pension pots than men. For example, it found males aged between 65 and 69 years had average pension pots of £212,000, while females averaged £35,000.
Despite this, Legal & General has found that 24% of people waive their rights to their ex-spouse’s retirement fund on divorce. As you can see, doing this could put your long-term financial security at serious risk.
A financial planner can explain the different ways a pension might be shared with you, such as:
- A Pension Sharing Order: this is where a court decides how much of your ex-spouse’s pension you receive.
- A Pension Attachment Order (formerly known as “pension earmarking”): this redirects part or all of an ex-spouse’s pension to you, which might include part of the tax-free lump sum. Nothing can be paid to you until your ex-spouse decides to draw an income from the pension though.
- A deferred lump sum: this is where both parties make an agreement to share the pension at a later date.
- An offsetting arrangement: assets with a similar value to your ex-spouse’s pension are awarded to you. For example, you may get the house if it’s of similar value to the retirement fund, allowing the ex-spouse to keep their pension.
They will also help you get back on to your financial feet
If you accept a lump sum settlement, speaking to a financial planner could help you get the most from it. This could ensure you can maintain your lifestyle both now and in the future, and help you avoid decisions you later regret.
Let’s consider three ways a planner could do this.
Create a financial strategy
Developing a financial strategy with you could ensure you meet your short-, medium- and long-term goals. This could help you maintain your lifestyle and become financially independent, allowing you to enjoy the life you want and look forward to a brighter future.
Help you inflation-proof your money
The rising cost of living – otherwise known as “inflation” – could devalue your cash in real terms over the long-term. This is because £1 in the future is likely to buy less than £1 will today.
If you use an inflation calculator, it reveals you would need £186 in March 2022 to have the same spending power as £100 in 2002. In other words, your money needed to grow by 85.6% during the period to keep pace with an average inflation rate of 3.1%.
When you consider the Office for National Statistics revealed inflation stood at 6.2% in February 2022, and savings accounts typically offer rates significantly below this, holding your divorce settlement in cash could reduce your wealth in real terms.
And, with Kantar research showing that women are less likely to have a Stocks and Shares ISA than men, you could be missing out on valuable investment opportunities.
Working with a planner could help you to devise a strategy that ensures you get the most from your settlement and helps inflation-proof it. This might include investing as the stock market typically offers greater long-term growth potential than cash.
According to the 2019 Barclays Equity Gilt Study, the stock market outperformed cash in 91% of 10-year periods between 1899 and 2019. The study tracked the nominal performance of £100 invested in cash, bonds or equities during the period.
Provide financial coaching
A good financial planner will provide financial coaching to help you better understand the world of finance. If your ex-spouse dealt with financial issues before your divorce, coaching could help you feel more confident about money and investing, so that you can make better decisions about your wealth.
In many instances, working in advance with a planner can help you understand what your “numbers” look like and how much you need to be financially secure. This information is very powerful when negotiating your financial settlement as you’ll understand the amount of money you require and why.
It could also provide you with the confidence to stand firm and obtain the settlement you deserve.
Importantly, financial coaching can also help you deal with any emotional aspects of the negotiation. In many cases women are made to feel undeserving of what is rightfully their share of the marital assets.
Financial coaching helps you understand these feelings and address them, allowing you to hold out for an amount your solicitor tells you is fair.
Get in touch
As specialists in providing holistic, female-focused financial planning, we have a proven track record in helping women both during and after divorce.
Key to this is the financial coaching we provide, which helps build confidence and understanding around your wealth. This helps you become more comfortable when making financial decisions, allowing you to look forward to a brighter tomorrow and a lifestyle you aspire to.
If you would like to talk to us, call us on 0116 262 1414 to find out more.
Please note
This article is for information only. Please do not act based on anything you might read in this article until you have sought professional advice.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
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