Going through a divorce is already emotionally challenging, but financial concerns can add a layer of complexity. New research carried out by Legal & General Home Finance highlights that many divorces are being delayed due to financial struggles, with many individuals failing to seek the financial advice they need to navigate this difficult time. The study, which coincides with Divorce Day on January 6th, sheds light on how financial pressures are affecting the separation process and post-divorce life. Here's what you need to know:
Key Insights:
- Delayed Divorces: 1 in 6 divorces over the past five years were postponed due to financial concerns. This includes worries about income reduction, rising living costs, and the cost of the divorce itself.
- Impact on Income: After a divorce, many individuals see their annual income drop by an average of £9,000 in the first year. This can add financial strain during an already stressful time.
- Financial Unfairness: 40% of divorcees feel that the financial side of their divorce was unfair. Despite this, only 7% sought financial advice to help them through the process.
- Wills and Estate Planning: Nearly 900,000 divorced individuals in the UK have not updated their wills to reflect their new situation, potentially leaving their former partner with a claim on their estate.
Financial Strain After Divorce:
When divorce happens, the financial effects can be severe and long-lasting. Here's what you might face:
- Income Decrease: 45% of people experience a significant income reduction (by 30%, or about £9,000 annually).
- Increased Living Costs: New living expenses after separation (29%) and the cost of separation itself (23%) can add more pressure.
- Debt: Many people take on debt to cover the average cost of £2,500 for a divorce.
Why Seeking Financial Advice Is Critical:
Seeking advice early on—ideally before you separate—can make a significant difference in ensuring you're financially prepared. Some common pitfalls include:
- Pension Rights: Only 13% of people consider pensions when dividing assets, and many mistakenly waive their pension rights, which can impact retirement security.
- Future Financial Claims: Without legal protection such as a Clean Break Order, you may still be exposed to future claims from your ex-partner.
- Unchanged Wills: Failing to update your will after a divorce can lead to disputes over inheritance. It's important to ensure your wishes are clear and your estate is updated.
How Financial Advice Can Help You Through Divorce:
Divorce can feel overwhelming, but with the right financial planning and expert advice, you can ensure a smoother transition to your new life. Here’s how you can take charge:
- Plan Ahead: Speak to a financial adviser before making any major decisions. They can help you avoid costly mistakes like overlooking pensions or failing to update important documents.
- Work with Professionals: Building a relationship with a solicitor and financial adviser can help ensure your divorce settlement is fair, complete, and legally binding.
- Sensitive Support: Divorce is not only a financial matter but an emotional one. It’s important to approach the process with empathy, understanding, and care to ensure you make decisions that will support your future well-being.
How Can Equity Release Help in Divorce Settlements?
- Accessing Funds Without Selling the Family Home: In many divorces, one partner may wish to stay in the family home. Equity release can help them unlock the value of the property without having to sell it, making it easier to meet the financial obligations of the divorce settlement (e.g., paying a lump sum to the other party).
- Ensuring a Fair Asset Split: If the equity in the home is a significant part of your wealth, releasing some of it can help ensure that both partners receive a fair share of the assets. This can be particularly useful when one partner may not have enough liquid assets to settle a financial claim but does have equity tied up in property.
- Providing Financial Flexibility: Equity release provides an opportunity to access funds for other needs (such as paying off debts or funding future living arrangements) while keeping the family home. This can help avoid the stress of selling the property, particularly in the case of children who may want to remain in the family environment.
Things to Consider:
While equity release can offer a useful solution, it is important to weigh the potential risks:
- Interest Accumulation: The amount borrowed through equity release accrues interest over time, which could reduce the amount left in the property for future heirs.
- Long-Term Commitment: You’ll need to consider how the loan will be repaid, typically upon selling the property or when you pass away.
- Eligibility: Equity release is usually only available to individuals aged 55 or older and typically requires that the property be in good condition and meet certain value thresholds.
Speak with a Specialist:
Equity release can be a powerful tool in a divorce settlement, but it’s crucial to get professional advice before proceeding. An independent equity release adviser can help you assess whether equity release is the right option for your situation and guide you through the process to ensure you make the best decision for your future.
While divorce can bring emotional and financial challenges, good financial advice and planning can significantly ease the burden. With the right guidance, you can navigate the complexities of divorce with confidence, protecting your financial future and ensuring that you're set for the next chapter of your life. Don't hesitate to seek advice and make sure you're taking the right steps for your financial security.
