Divorce – How to protect your financial position13 June 2013
David Smith, Wealth Management Director at Bestinvest
“Yesterday [12 June 2013] the Supreme Court ruled in favour of an oil tycoon’s estranged wife, ordering him to hand over a multi-million pound property portfolio, even though these properties were owned by an offshore company. This decision could have far reaching implications for some wealthy divorcing couples. However, while high profile divorce proceedings such as this – or the latest celebrity break up - demand much media attention, protecting your financial position during a period of emotional stress can be a complicated affair irrespective of your wealth. With the UK having one of the highest divorce rates in Europe, this is financial reality that many people will face during their lives.
Matrimonial Home Rights
“It is in your interest to try to agree urgent, short-term financial matters with your ex-partner. If you can’t agree, think about what you can do to protect your position and take legal advice as soon as you can. If the family home is owned in your ex-spouse or civil partner's sole name, you should look at using a 'matrimonial home rights notice' to protect you as far as possible from your ex-partner trying to sell, transfer or mortgage the property without your agreement. You can also apply to the court for an injunction to stop your ex-partner from disposing of, transferring or selling assets or from moving assets abroad if this would prevent a fair settlement.
“If you have joint accounts or loans with your ex-partner, especially if the breakup isn’t amicable, you should contact your bank, credit card and other providers to explain what has happened. You can instruct them to stop your ex-partner running up any new debts or withdrawing funds. Freezing the accounts will affect you both so make sure you think about this carefully. You'll also need to make agreements to ensure that any joint bills can still be paid, for example by Direct Debit.
Home or pension?
“One of the first financial burdens is the separation of one household into two. Trading a share of a spouse’s pension for the marital home is one of the most common mistakes divorcing people make. Even though the value of the house might be equal to the value of the pension at the time of divorce, they are apples and oranges. A house requires income to pay for repairs, maintenance and improvements; a pension, however, produces income without costing income. A 50/50 division of assets may sound equal, but it may not meet your long-term needs. It’s not how many assets you have – it’s what you can do with the value of those assets that matters most.
“Divorce can also come with big tax bills. It’s not uncommon for a spouse to run and clear out bank accounts, cash in the Premium Bonds and sell off stocks, bonds and other investments. People are not often aware that there are tax consequences for selling certain assets. Spouses may want to get the money or need it for income, but the taxes can really add up.
“Additionally, when you are married you can take advantage of the inheritance tax (IHT) ‘spousal exemption’, meaning all assets can be passed to a spouse on 1st death inheritance tax free. The nil rate band of the deceased spouse also passes to the survivor thus maximising IHT exemptions and ‘buying time’ to mitigate inheritance tax. Once divorced, this exemption is lost, so typically on death, any assets pass directly to the children and any value in excess of the nil-rate band will be subject to tax at 40% tax. A new Will, and possibly new Powers of Attorney, will need to be drawn up, incurring potentially thousands of pounds in charges.
Get Financial Advice as well as Legal Advice
“Many people decide they want help to legally end their marriage or civil partnership, even if only for initial advice. Financial Advisers and Accountants can help with any financial aspects and legal advice can be sought from a variety of specialists including Mediators and Solicitors. The average cost of divorce in the UK is estimated to be £1,300.
“Post-divorce you must sit down with your Financial Adviser and review your revised circumstances. You will need to reconsider all of your financial goals and ascertain how you will now attain them. This means reviewing your pension, life assurance and income protection assurance arrangements as well as assessing what your revised borrowing ability is. The likelihood is that, whilst you may have similar aspirations, you will likely be forced to realign your expectations.”
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The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change.
Founded in 1986, Bestinvest was a pioneer of helping clients reduce the costs of investing through discounting commissions. Today Bestinvest has grown into a leading private client adviser which helps over 50,000 investors. Bestinvest offers a range of services including guidance, investment advice, financial planning and discretionary portfolio management all of which are underpinned by a commitment to rigorous investment research. Through its low cost Select service, Bestinvest offers execution-only investors a Self-Invested Personal Pension Plan (SIPP), Individual Savings Account (ISA), Junior ISA (JISA) and Investment Account with access to more than 2,000 funds as well as investment trusts, shares and Exchange Traded Funds. Bestinvest has won numerous awards including ‘Self-Select ISA Provider of the Year 2011’ and ‘UK Wealth Manager of the Year 2011’ as voted by readers of the Investors Chronicle and Financial Times and Investment Adviser of the Year 2012 at the Professional Adviser Awards. Headquartered in Mayfair, London, Bestinvest has 14 regional offices with 200 staff servicing clients with over £4 billion of assets.
Tilney is a leading investment and financial planning group that builds on a heritage of more than 180 years. Our clients are private investors, charities and professional intermediaries who trust us with over £23 billion of their assets. We offer a range of services including financial planning, investment management and advice and, through our Bestinvest service, a leading online platform for those who prefer to manage their own investments.
We have won numerous awards. Tilney has been awarded Best Conventional Advisory Service at the 2018 City of London Wealth Management Awards, Best Advisory Service in the 2015 City of London Wealth Management Awards; Investment Award – Cautious category in the Private Asset Management Awards; and Stockbroker of the Year, Execution-only Stockbroker of the Year and Self-select ISA Provider of the Year 2015, as voted by readers of the Financial Times and Investors Chronicle. Bestinvest was voted Best SIPP Provider and Best Fund Platform at the 2017 City of London Wealth Management Awards, Best Direct SIPP Provider at the YourMoney.com Awards 2017, Best Stocks & Shares ISA Provider at the 2017 Shares Awards, as well as Best Self Select ISA Provider, Best Online/Execution-only Stockbroker and Best Investment Platform 2017 at the FT and Investors Chronicle Investment and Wealth Management Awards, as voted by readers of the FT and Investors Chronicle.
Headquartered in Mayfair, London, the Tilney Group employs over 1,000 staff across our network of 30 offices, enabling us to support clients with a local service throughout the UK.