DEALING WITH SEPARATION OR DIVORCE

Divorce or separation from a partner can be a complicated and emotional time – and sometimes it's made even more complex by financial disagreements.

When it's time to work out how to divide up your assets, there are varying levels of support you can use. It may be expensive depending on how much you rely on a solicitor.

The most cost-effective route is doing it yourself as much as possible. However, this route isn’t always available. For example, if you live in Scotland and you have children under 16, you need to use a solicitor. Find out more from MoneyHelper about how to sort out your finances during divorce.

The Divorce calculator provided by MoneyHelper can help you work out how to manage money through divorce.

When doing it yourselves, you may also need to consider the financial consequences of :

• Potential court and legal fees: The cost of sorting the division of assets is best kept down by discussing the subject together and coming to an agreement yourselves. However, it’s not always straightforward when there are children or significant assets involved. At this point, you might need mediation to divide the assets. If any disputes end up in court and you require representation, or if there's a complex transfer of ownership that you need a solicitor for, legal fees will apply.
• Children: If you and your ex-partner have children together, it’s crucial to come to an agreement regarding child support payments as quickly as possible. When you consider child support, take into account both the costs you face today and the costs you’re likely to face in the future – for instance, when they start high school or potentially university.

Child maintenance payments don't impact the benefits you and your children are eligible for, and won't be taxed.

• Property: You need to decide if one of you is going to continue staying in the property and what that means in terms of mortgage payments. It could be challenging to maintain the mortgage with a single income, so the right decision for you may be to sell. If you both decide to sell, there will be costs involved. On the other hand, if one of you decides to buy your former partner out of their share, you’ll need to secure lending – and this will also incur costs.
• Debt: Focus on any shared debts you and your ex-partner have. If you were married, any debts (such as a mortgage) are shared. However, personal debt (such as credit card debt and student loans) belong to whichever of you took on that debt. Decide how you and your ex-partner will repay any joint debts, and then close any associated joint accounts as soon as possible.
• Investments and savings: Similar to property, you'll need to discuss how you want to divide your assets up. This applies to money held in joint savings accounts, pensions, and any investment assets you own together. You might need to buy the other party out of their share, or you could mutually agree to sell them and split any benefit or income between you. We'll cover what happens to pension savings in chapter three, Sorting out your pension.
• Accounts and policies: Review shared polices like car insurance, home insurance and any joint life or critical illness cover. If you have a joint credit card, current account or loan, get in touch with the provider to explain the situation. You may need to freeze the associated accounts. Keep in mind that you’ll still need to pay joint bills via direct debit, so avoid freezing these accounts or get in touch with the provider to arrange a new policy or change the one you have now.

MoneyHelper guidance for couples going through separation, provides general guidance for couples going through separation, including greater detail on the impact on your property, divorce agreements and child maintenance.

The government offer more information regarding the processes associated with divorce and can also give you details on potential extra support. You may be entitled to:

• Universal Credit: to support with childcare or housing costs. Following divorce, you may be classed as a single parent – which means you might be entitled to a different level of Universal Credit depending on the age of your child or children. For more information on claiming state support, visit our Accessing Universal Credit Online section or MoneyHelper.
• Income tax relief: If your combined income was above £50,000 and you were receiving child benefit, you were likely paying income tax on it. If your income has now dropped below that threshold, you’ll be able to claim a higher amount without additional tax.

Get in touch with the Child Benefit Office to find out more about your tax situation.

If you and your ex-partner are struggling to agree on child maintenance, you can contact the Child Maintenance Service. They can also help you resolve issues later on with getting your ex-partner to send the money you agreed on.

People often forget about pensions during divorce settlements. But pension funds tend to be one of the largest assets you and your partner have, so it's important to decide how you'll deal with them.

You have a variety of options available, so you should review them all and decide which is best for your circumstances.

• Pension offsetting: However much of your pension you would need to give to your ex-partner, you can instead transfer assets of an equivalent value and keep your full pension.
• Pensions sharing: Either you or your ex-partner transfer part of your pension value to the other. Depending on the provider and scheme, the person receiving the money may have to join the same scheme.
• Earmarking or attachment orders: If you or your ex-partner are receiving pension benefits, you’ll need to transfer an agreed proportion of those benefits to the other person.

Planning ahead

It's a good idea to review who your money is passed on to after you die – either making a will if you don't have one, or revisiting yours if you do. You should also review the nominated beneficiaries of your workplace pension pot as this does not form part of an estate. It's better to sort it out now to avoid any difficult scenarios in the future.

Now that you’re in an independent financial position, take the time to think about how this affects your budget today, and also your longer term plans for retirement and your ability to finance them. The Pensions and Lifetime Savings Association (PLSA) Retirement Living Standards provides general guidance on what pension savings you may require for the kind of post-retirement lifestyle you want.

Given your new budget or future retirement ambitions, you might need to change the amount you pay into your pension each month too. If you aren’t sure about the best thing to do, we recommend speaking to a financial adviser before making any changes. You will normally be charged for any advice.