By Guest Blogger Hannah Foxley of The Women’s Wealth Expert http://www.thewomenswealthexpert.co.uk/#!
A mistake that is often made in the divorce process is involving the financial planner at the end once the settlement has been agreed, but they can add much value in helping to reach a settlement.
A good financial planner will bring to your attention and help you avoid making mistakes, I have included some here as examples but the list is not exhaustive;
Dealing with financial assets on a single basis rather than taking account of the bigger picture
- Keeping a house that you can’t afford
- Failing to break all financial ties
- Not having a true understanding of the financial assets and debts of a marriage
- Failing to understand what your true outgoings are and preparing an incorrect budget
- Assuming that an equal division is a fair division on divorce
- Failing to understand the risk and reward trade off when offsetting assets
- Having an unrealistic expectation of your lifestyle after divorce
- Failing to understand the true value of your husband’s defined benefit pension scheme
- Failing to take your fair share of your husband’s pensions
- Taking the house in lieu of the pension
- Not taking into consideration the impact of tax on assets
- Failing to change joint life policies
- Failing to insure the maintenance payments and maintain control of policies
- Not understanding the liquidity of assets
- Failing to consider your long-term security
- Forgetting about the long-term impact of inflation and tax and having unrealistic expectations of investment returns
- Failing to develop a post-divorce financial plan
So, as you can see, having a financial planner is key.
Here are some of the ways that they can help you.
Help with preparing the Form E
The Form E is the financial statement document in a divorce and is the lynchpin of the financial decision-making. It is absolutely vital to get the information on it correct. The most crucial part for you to get right is part 3, which relates to the financial requirements that you have both in terms of capital and income. This is where any mistakes in the budget could have a negative impact on the settlement that you agree. It is imperative to include absolutely everything on that statement and take into account the impact of inflation and tax.
In addition to that, a financial planner can help with the rest of the form by assisting you to obtain all of the relevant information about your savings, investments and pensions from the providers. Because they see this paperwork all of the time, they know exactly what they are looking for and can take the stress away from you and save your solicitor time also.
Understanding the assets
If your husband has many different assets and investments, you will need to understand exactly what they are, how risky they are, what the tax implications are and whether you can actually sell them. You will also need to understand the future value of those investments and how they will help your future financial security rather than focussing on the current value of it. Your husband is likely to have a different risk profile to you and so you will need someone who really understands the assets to explain them to you. A financial planner can do this for you.
Getting to grips with the pensions
Getting your share of your husband’s pension is absolutely crucial and it’s not just about agreeing an equal split based on the current value of the funds, doing this could be seriously detrimental to you. There are many factors to consider when looking at splitting the pension and they are a significant asset in most marriages, so getting it right is crucial. Only a financial adviser can advise on pensions. They work with your lawyer and, if necessary, an actuary, if a final salary pension scheme is involved to bring the figures to life and explain the impact of the factors used in the calculations.
Calculating your future income needs
When calculating your future income needs factors such as inflation, tax and investment returns need to be taken into consideration so that you do not run out of money. Failure to take these factors into consideration can and will have a devastating effect on your future financial security.
A good financial planner uses specialist software, which can analyse future cash flow requirements taking into account inflation, tax and different investment returns to calculate the sum that would be required as a settlement.
This software gives you a visual representation of how different factors can affect your future financial security. It will show when you will run out of money, which allows the financial planner and lawyer to calculate how much of a lump sum you need as a settlement or how much maintenance needs to be paid. It can also be used to show how much of your husband’s pension you will need to take to ensure that you have a fair income in retirement. It clearly shows the effects of inflation and investment returns on your money and is brilliant for helping you to plan and budget. The results of this analysis and the assumptions used can be used to produce a report to provide to the court. The planner will then use this software for the post-divorce financial planning to help you set a realistic budget to live on so that you don’t run out of money. This is the true value of a great financial planner.
Protection of the settlement
You may agree as part of the settlement that your husband will pay you maintenance either until the children reach a certain age, or it may be for the rest of your life. It is essential that this is protected in case your husband becomes sick or dies. It is also vital to ensure that the protection is set up in such a way that you know that he is paying the premiums, and you don’t find out when it is too late that he cancelled the policy without you knowing.
Post-divorce financial planning
Once the divorce has been finalised and you have your settlement, you will be on your own financially. Proper financial planning is really important as you don’t want to get ten years down the line and run out of money, or get to retirement and realise that you don’t have enough.
As described above, financial planners can help you to budget correctly, so that you have money for now and money for the future. You will also need help with school and university fees for the children.
You may have got some of your husband’s pension as part of the settlement and this will need to be invested for you, as well as a discussion around adding to it yourself. You may have cash and assets that you have no idea what to do with. This is a very scary and fearful position to be in when you are not used to it and this is where the planner can help. The relationship with your financial planner is a long one and will guide you through life’s changes as well as any curve balls that it throws at you.
Your relationship with your lawyer ends as soon as the divorce is finalised but a financial planner will be there for as long as you continue to have a relationship with them. This will give you a feeling of security and continuity. By having them involved at the very beginning you can ensure that you avoid making expensive financial mistakes, they can support your lawyer, working with them to ensure the best outcome for you.
If you would like further financial advice then you can contact Hannah on 020 7125 0409 or email her at Hannah@thewomenswealthexpert.co.uk