Written By Sophie Haslehurst
Conversations surrounding financial planning and divorce are rarely easy, as there are many challenges and emotions at play. This is often further heightened when children and the division of the family home is involved. However, with the help of an Independent Financial Adviser to diffuse a difficult situation and offer a calm, thoughtful approach, the process of financial planning at divorce does not have to be so difficult, which was the case with my clients Olivia and John.
Olivia and John, both in their mid-forties with two young children, had amicably agreed to separate pending a formalised divorce. They were in the process of agreeing on the financial settlement, however, as they got into the more complex details of the separation, things started to become heated. Disagreements began over childcare, the family home, their children’s private education and the uncertain outlook of their individual financial futures, and so they came to me seeking financial advice.
John was looking to move into a new home whilst Olivia would continue to maintain the family home alone. It was clear that they both wished to put their children first, and so were able to come together as a team to figure out how they could afford to live separately following their divorce. They also agreed to divide their assets fairly.
A useful tool in determining what your financial future can look like is cashflow modelling, which offers a visual aid that is easier to understand than looking at a long list of figures. During a cashflow modelling meeting, we were able to lay out each of their individual income and expenditure, making sure to include the remaining period of the children’s private education up until age 16, with some support for university.
This exercise showed that Olivia had very little put aside for retirement, having worked part-time since having children and stopped paying into her pension since, leaving it at a value of £80,000. However, John did have a more robust pension in place of £300,000 where he was paying a total of 15% of his salary into his employer’s scheme. Due to the increased living costs following the divorce, we looked at reducing these pension contributions to give them more disposable income on a monthly basis.
One of the other larger assets in question was the family home worth £700,000 in total. However, upon purchase Olivia paid a large proportion of the deposit using inheritance from her late parents she lost at a young age. In order to set each of them out better for the future, it was agreed that Olivia would retain a larger share of the house.
To balance their assets out fairly as per their wishes, we offset the additional value of John’s pension, against the equity Olivia retained in the house. This would allow Olivia to be able to afford to keep the family home and avoid having to divide John’s pension provisions which was also a tax-efficient option for him.
Although discussions surrounding divorce can be difficult and emotional, there are huge benefits to be gained on both sides by coming together to work through your challenges. In Olivia and John’s case, both parents left the process feeling more positively about their current circumstances and their individual financial futures, this also offers more stability for their children as well. Seeking financial advice can not only get your financial affairs in order, but speaking with a professional who you can turn to for questions can take the pressure and stress out of a difficult situation.
If you or a family member are facing similar challenges with a separation or divorce, please remember that Integrity365’s Independent Financial Advisers are here to support you should you need us. Get in touch on 0117 450 1300.
Written By Sophie Haslehurst
