Three ways to hold on to your wealth during divorce

Three ways to hold on to your wealth during divorce

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It’s likely that divorce will have a huge impact on your current and future financial well-being. Therefore although financial planning may not be at the forefront of your mind, it’s critical to give it some thought in order to hold onto your wealth during your divorce.

When you are going through a divorce everything is emotionally charged. However you must stay aware that you have a relatively short period to make financial decisions that will affect you for the rest of your life. The new no-fault divorce allows for a period of reflection during the process. It makes sense to use this wisely to concentrate on what matters for your future.

Only the very wealthy come through divorce without their standard of living being affected. The maths is simple in that two homes cost more than one and one wage brings in less than money than two.

Hold on to your wealth during divorce

1. Settle disputes out of court

Reaching an agreement costs much less than hashing out in court and takes far less time than disputed settlements.

Most importantly, it saves you from the emotional damage that cannot be avoided during court disputes. The new no-fault divorce takes the blame out of divorce proceedings. This should allow couples to focus more on what matters for the future, your finances and any children.

“Begin with the end in mind” is a mantra I say over and over to my clients. If you go into divorce with a clear objective of keeping your legal costs down, you are less likely to get blown off course when you have a bad day with your ex. Even the most amicable splits have their ups and downs, and one false move in the heat of the moment can send an amicable split into a costly legal mess. 

In a recent Daily Mail interview I recommended that separating couples settle disputes out of court> A disputed court case to reach a financial divorce settlement costs both spouses between £15,000 to £25,000 in legal costs.

Holding onto your wealth during divorce is about not making mistakes during the process that cause you long-lasting financial damage. We hear so much about student debt but seldom hear about the number of people saddled with divorce debt. With so much at stake, it simply makes sense to find a way to collaborate with your spouse, using mediation if it is impossible to agree with each other.

2. Work out your budget

It is imperative that you assess your living expenses. Working this out determines the amount of the divorce settlement you can afford to agree on. Budgeting is absolutely crucial for parents who will be the primary caregiver for the children. You can’t hold onto your wealth during divorce if you don’t know your living expenses as a starting point.

Your living costs such as mortgage payments or rent, utility bills, council tax and groceries are all basic requirements. However, there are many other costs (such as school, childcare, clothes, clubs, transportation to work and school) that you should include. Take the time to go through your bills and work out your current living expenses.

We know it’s easy to feel overwhelmed when you are dealing with the enormity of the change divorce presents in the short term. However, ensure you don’t lose sight of longer-term needs too. For example, are there adequate pension provisions in place? All too often there’s an imbalance in pension provision between separating couples. This must be addressed through a pension sharing order.

3. Understand the tax implications

It’s vital that you understand both how and when assets are taxed in order to hold onto your wealth during divorce. Divorce settlements have significant tax implications. For example your home is often your most significant capital asset, and any transfer potentially gives rise to Capital Gains Tax.

Understanding how this works and how liability may be avoided is essential to hold on to your wealth during divorce.

Building your wealth after divorce

One of the biggest changes we undergo in life is divorce. And as with all transitions, the way you perceive it, and the actions you take during it, determine whether your divorce becomes positive or a negative change.

It is highly unlikely that you will go through your divorce without a dip in your standard of living. Holding onto your wealth during divorce is often looking at the longer term.

It is often a challenge for stay-at-home parents to think about going back to work, but most of the time, they should once the time is right. If you’ve been out of the workplace for a long time, even thinking about returning can understandably be daunting. However, quite often a person’s most important asset is their earning capacity. If you are earning money you are building your future instead of eating into your retirement fund.

While divorce settlements seek to even out inequalities between separating spouses, your current earning potential is going to be a strong indicator of the amount of wealth you’ll gain post-divorce. Someone who already has a good career that has paid for a house and a sizeable pension has a better chance of building on that than someone starting from scratch. 

See the opportunity in your divorce

Gaining wealth after divorce takes effort, but for many, divorce can actually increase their focus and drive in their chosen career. Being divorced is expensive. Not only do you have divorce commitments such as child maintenance and the higher cost of maintaining a single-person household, but you have new life costs to consider too. 

I see divorce as an opportunity to stop and look at your life and work out what it is that you really want. Taking up activities and hobbies that give you joy is an important part of this process and comes with a cost. And eventually, the pain of the divorce leaves us all, and we start thinking about new relationships. Hold onto your wealth during your divorce and you will have a much better foundation to seek out new opportunities which work for you.

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