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Importance of Financial Planning on divorce
Divorce is an emotionally difficult time for clients and the role of the legal adviser is key. There are many important financial decisions that will have ramifications for years after the divorce settlement – for both parties and any children. Therefore the role of the financial planner should also be considered.
In June 2015, a number of our Chartered Financial Planners based in Scotland completed the Consensus training in Collaborative Law to better serve the needs of the family practitioner.
IMPORTANT POINTS TO CONSIDER:
• The most common piece of financial planning in this area is to invest the proceeds of a pension sharing order into a new pension. This is where one ex-spouse is awarded a portion of the other spouse’s pension as part of the overall financial divorce settlement. In some cases there will be a need to arrange an immediate income from this pension for the recipient.
• With pension sharing orders, it is worth noting that a 50/50 split may not necessarily mean both parties enjoy the same level of income throughout their lives. Despite the equality of gender when it comes to annuity rates, it remains true that statistically women live longer than men. Furthermore, we must also take into account the respective ages of each partner before arriving at a fair split of overall pension savings. It is common practice for this split to be actuarially calculated as part of the divorce process.
• Usually, clients will need to agree how to approach the marital home. If one party is to retain it, they may need support and financial advice over existing or new borrowing to release funds in order to buy out their ex-partner.
• Sometimes it is not in the financial best interests of either party to keep the family home, however emotionally unpleasant the thought may be.
• If maintenance for children is required, and it is being funded from the income of one partner, it is easy to overlook the need to take out protection policies in case that person dies or suffers an illness that would compromise their income. But without it, the surviving parent could be exposed to unnecessary risk and potentially compromise the quality of life of their children.
• Often, an agreement must be reached on a variety of different assets. It is beneficial to involve a financial planner early on, to help both parties arrive at an asset split that is tailored to the needs of each other. Seemingly unrelated issues, such as the different tax treatment of existing investments relative to the tax circumstances of each respective partner, can help maximise the value of the assets to both parties.
ONCE EVERYTHING IS FINALISED
A financial planner can help clients plan for their new circumstances. There may be lump sums arising from the divorce settlement to invest, or perhaps the client’s ex-partner looked after the household finances. Other clients may simply need a steer on how to manage their finances effectively.
Investments can go down as well as up and you can get back less than you originally invested. This page is not advice to invest of use our services. Prevailing tax rates and the availability of tax reliefs are dependent on your individual circumstances and are subject to change. These pages are for professional use only.
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