Financial Planning during divorce: 5 things you need to know

Separation or divorce is one of life’s biggest transitions. Alongside the emotional upheaval, there are often significant financial decisions to make, and while financial planning during separation might be the last thing on your mind, the choices you make now can shape your financial position for years to come.

It’s completely understandable to feel overwhelmed at a time like this. But taking a step back to properly understand your finances, rather than making quick decisions under pressure, can bring real clarity and confidence when you need it most.

Here are five things worth thinking about if you’re navigating a separation.

1. Take stock of your financial position

Before you can make informed decisions, you need a clear picture of exactly what you have. That means looking closely at:

• Assets.
• Savings.
• Investments.
• Pensions.
• Property.
• Debts.
• Income and expenditure.

It’s easy to focus on the most visible items, the house, the savings account, and overlook others. But a full picture, built from every part of your financial life, is the only solid foundation for the decisions ahead. Without it, it’s very difficult to know whether any proposed settlement is actually fair, or whether it will work for you in the long run.

2. Don’t overlook pensions

When people think about dividing assets in a divorce, the family home is usually front of mind. Pensions are far easier to overlook, but for many people, a pension is one of the largest assets they own, sometimes larger than the value of the property itself.

Pensions can be split as part of a settlement through what’s known as a pension sharing order, which allows a percentage of one party’s pension to be transferred into a pension in the other party’s name. Valuing pensions correctly, and understanding how a sharing order would actually affect each person’s future income, is complex; it isn’t as straightforward as splitting a bank balance.

This is exactly the kind of area where specialist financial advice makes a real difference. Getting pensions wrong in a settlement can have consequences that only become apparent decades later, when it’s too late to put right.

3. Think beyond today’s divorce settlement

It’s natural to focus on the here and now during a separation, but a good financial plan looks well beyond the point of settlement. Some of the questions worth asking yourself include:

• What does retirement look like for you now?
• What income will you need, and where will it come from?
• How will you fund your children’s education?
• What does housing look like for you going forward?
• What does your day-to-day cash flow need to cover?

Thinking through these questions early means you’re negotiating a settlement with your future life in mind, not just today’s balance sheet.

4. Review your wider financial plan

Divorce affects far more than the immediate division of assets; it touches almost every part of your financial life. Once a settlement is in place, it’s worth reviewing and updating:

• Your will.
• Lasting Powers of Attorney.
• Protection policies.
• Beneficiaries on pensions and investments.
• Savings goals.
• Investment strategy.

Many people are surprised to realise how much needs to change. An old will or an outdated beneficiary nomination can undo the intentions behind a carefully negotiated settlement, so this step matters more than it might seem.

5. Build a divorce financial plan for the future

Separation is difficult, but it can also be the starting point for a fresh financial future. Good financial planning can help with:

• Rebuilding confidence in your finances.
• Setting new personal and financial goals.
• Understanding what you can realistically afford.
• Creating a long-term strategy that supports the life you want next.

Getting the right support

Every separation is different, and there’s no single right answer for how to approach the financial side of it. Speaking to a financial planner can help you understand your options clearly and make informed decisions that support your long-term financial wellbeing.

To help you avoid costly missteps, take a look at our related blog, 6 common financial mistakes made during separation.

If you have any questions about separation or would like to talk to a member of the team to talk through your circumstances, please don’t hesitate to get in contact with Claire McMahon, or your usual AAB Wealth contact.