Protecting your wealth in a divorce

Going through a divorce is rarely easy, but the process can certainly be made much smoother if you have a good support network. Just as you’ll likely need advice from a solicitor, and empathy from friends and family, it’s wise to consider expert help with your finances.

As well as the immediate changes divorce brings, there are long-term repercussions to navigate relating to your investment plans, retirement plans, and inheritance plans. We commissioned a survey of people who have divorced in the past ten years to explore the changes they experienced over time and provide insight into what to expect.

Dividing your assets

Perhaps the most notable financial impact of a divorce is the division of your assets, such as pensions, property, savings, and investments. This often involves a payment from one partner to the other, which can vary in size considerably depending on the wealth of the people involved. 15% of our survey respondents told us their divorce settlement was worth more than £100,000.

While most people (55%) take advice from a solicitor, only 6% of those we surveyed spoke to a financial adviser or wealth manager. With this approach, just over half (54%) of respondents said they were happy with the agreed divorce settlement, while more than a third (36%) were unhappy.

The consequences of the way you split your wealth, such as keeping the family home versus taking a share of savings and investments, may not be immediately obvious. Seeking financial advice can help you understand where you both stand and which options could allow you to divide your assets fairly, without leaving one partner substantially worse off.

Adjusting to a change in wealth

Divorce commonly has a negative impact on wealth. In our survey, one in three respondents (33%) told us that their divorce caused their wealth to fall, with men slightly more likely to report a decrease than women.

However, nearly one in four respondents (23%) found that their wealth increased, potentially due to the receipt of a lump sum or asset as part of the settlement. If you’re in this position, you may need to look at investing your new wealth to deliver an income to live on or decide how best to use an asset to benefit you in your new life.

Whether you’re receiving or paying out a settlement, you’ll need to consider how this affects the overall picture of your finances. A financial planner can help you to make the essential decisions now that will ensure you can maintain your standard of living in the future.

Reviewing your retirement plan

Pensions are commonly among a divorcing couple’s most valuable assets, after property. Many couples will agree to split pension assets, which means they will each individually need to review how this amount will fund their retirement and what else they need to do to secure the lifestyle they want. Financial advice can help to ensure that you remain on track with your plans.

If your retirement is still a long way off, divorce may not be the only change you’ll need to navigate. Perhaps you’ll remarry in the future, change careers, or start a business. Retirement plans need to be revisited on a regular basis to remain appropriate, which is why many people opt for ongoing financial advice.

Updating your inheritance plan

Another area that is essential to review after a divorce is estate planning. Most married people intend to leave a significant portion, if not all, of their wealth and assets to their spouse after their death, meaning that it is passed on without incurring inheritance tax.

Once this changes, there are likely to be inheritance tax implications that could impact your children or whomever else benefits from your estate. In our survey, 16% of respondents told us that inheritance tax has become a priority since divorce, which indicates that some people are overlooking its importance.

A financial planner or wealth manager can help you identify ways to protect your loved ones from inheritance tax, offering solutions such as optimising your tax-free allowances, making lifetime gifts, or taking out insurance.

Moving on to the next chapter

Our research also revealed that 1 in 4 people who have divorced in the past 10 years say it took three or more years to get back on their feet – and another 14% say they’re still not quite there.

While it takes time to heal and move on in every respect, you don’t have to go through it alone. Having the support of a financial planner or wealth manager can help you feel confident that you’re making the best decisions for your future – especially if you’re used to making those decisions with a partner.

If you’d like to find out if you’d benefit from financial advice, you can arrange a chat with a member of our team. They have considerable experience helping people through the same situation and will sensitively approach all the topics you need to consider. Get in touch to find out more.

The information contained in this article does not constitute a personal recommendation and the investment or investment services referred to may not be suitable for all investors. Any opinion or estimate expressed in this publication is Investec Wealth & Investment’s current opinion as of the date of this article and is subject to change without notice. The value of investments and any income from them is not guaranteed and may go down as well as up; you may get back less than the amount invested. Past performance is not an indication of future performance.

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