Divorce marks a turning point in anyone’s life and represents a major change in many different aspects of a person’s life and, as such, the experience is different for everyone who goes through it. But through my professional life, as I work closely with separating or divorcing couples, I have found that some issues arise regularly and are common to many of cases.
Many people do not realise that divorce does not bring to an end the financial responsibilities arising from the marriage, so it is important to finalise the agreement that you have reached. Financial claims survive divorce and, subject to some limitations if you remarry, claims can be brought at any time in the future. Very often couples will reach and implement an agreement assuming this brings the matter to a close but without a court order to seal the arrangements, it may still be possible for one party to make a claim against the other in the future, so the lesson here is that you should always get a court order to confirm your financial agreement.
In some cases it can be tempting to trade retention of the house against pension rights. Generally speaking, a wife wants to retain the marital home as a home for herself and the children whilst a husband wants to protect his pension. Couples will frequently look to trade one against the other and in some case that might be entirely appropriate. However, in other cases involving, for example, NHS, Armed Forces or local government public sector pensions, this approach can create an unfair sharing of capital and leave one party unable to meet their long-term needs – so it is important you get advice to understand what retirement will look like without a share of the pension.
It can also be a mistake to divide the pension pot rather than the projected retirement income. When couples do agree to share a pension, some plump for sharing the wrong thing. Anyone researching pension sharing orders or pension on divorce will come across the term Cash Equivalent Transfer Value (CETV). It is often tempting to take this figure at face value and simply divide by two but that does not necessarily create equality of retirement income. Factors used by the scheme, the implications for the person receiving a pension credit and, in some cases, having to leave the scheme, and underlying guarantees in the scheme, all mean that sharing the CETV may not achieve anything like equality. Specialised legal and financial advice will help you understand the pension schemes.
When it comes to assets, it is important not to accept valuations at face value. This advice applies to any asset, whether it is a house, business, pension or even a debt. The valuation information should be scrutinised and, where there is doubt, an appropriately qualified expert should be consulted – you should get specialist advice and dig a bit deeper.
It is always important to look ahead and plan for the future. Very often settlements are entered into without any reality testing, but they should always be tested against real life to establish exactly what the new arrangements will mean. What type of housing will you be able to afford? Will you have enough income to meet your outgoings? Will you have enough money in retirement? And in the light of the current cost of living crisis, it is even more important to understand how resilient your financial agreement is. Professional advice will help you understand your future goals and the extent of your tolerance for negotiation.
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