Divorce – the financial bits
Getting divorced sucks. And as if the emotional upheaval wasn't enough, there's financial baggage too. We'll try and help you get it sorted, offer some practical tips and remind you that after divorce and distress quite often comes delight! Hang on in there.
Gwyneth Paltrow may have mastered the art of conscious uncoupling, but most people are more likely to be chopping up suits, spitting venom or feeling like the bottom of their world has fallen out. Possibly all three in the same hour. Divorce does not bring out the best in any of us and is a tricky time to navigate which tends to cost twice as much and take twice as long as any of us would wish.
Common questions are - what to do with the house and the mortgage; working out what child maintenance you will pay/receive; splitting up the wealth and sorting out pensions. These are some of the things these pages will walk you through.
The divorce process
The legal bit – unfortunately, we do not yet have no-fault divorce in England and Wales. This means unless you’ve been separated for two years and both agree to divorce or You've been separated for five years (just one person has to agree), then you’re forced to enter into a blame game. Three other options for divorcing in England and Wales are: adultery, desertion and unreasonable behaviour. The key to staying amicable is to take a pragmatic approach between you on who divorces who and agreeing unreasonable behaviour details together so they don’t come as a shock. Your divorce papers are not a public document so don’t let the paperwork spark acrimony between you.
The first part of the divorce process is to file a divorce petition. This means applying to the court and giving the reasons why you want the marriage to end. There are specific forms for this, and you can get them here.
If you have been named in a divorce petition by your husband or wife, you need to respond. As part of this, you will receive: a copy of the divorce petition, a notice of proceedings form and an acknowledgment of service form. The acknowledgment of service needs to be completed and returned. There’s more info here.
The next stage is to apply for a ‘decree nisi’ – a legal document showing you are able to divorce. Either your spouse needs to agree to the divorce or it needs to have been granted by a judge in court. You can apply for a decree absolute – this legally ends your marriage - six weeks after you get the decree nisi. The Citizen's Advice website is good, and you can get advice over the phone as well, 03444 111 444 for England and 03444 77 20 20 for Wales.
The very basic starting point for asset division is a 50:50 split of the wealth that has been accumulated during the marriage – so if your house has gone up by £30,000 since you bought it as a couple, the ‘back of the fag packet’ starting point is £15,000 each.
Cars, investments, property - it all goes into the mix and the longer you have been together, the bigger the case for a 50:50 split.
Don’t forget the pension – it could be the biggest asset but can be neglected as out of sight is out of mind.
If you earn less than £156,000 a year and you’re the main breadwinner who will have the kids the minority of the time, maintenance is circa 20% of your income for 2 kids, falling proportionately for every night they spend with you. Here's a place to calculate your child maintenance.
Find a lawyer
Unless you are confident you and your ex can agree everything amicably, chances are you’ll need to find a lawyer. This does not come cheap. Ask your friends, financial adviser or work colleagues for any personal recommendations. Empathy with your lawyer is important, but remember, you want this person to fight your corner, sensibly and practically, not to be your best friend.
If you pay a solicitor by the hour, a divorce will typically cost anything from £2,000 to £30,000. Unless you're a tycoon and then the gloves are off.....
Step By Step
1.Pour yourself a large glass of wine or whatever rings your bell.
2. Look at who pays the mortgage – whose name is on the title deeds or rental document? They are obliged to pay, whoever lives there so check this asap.
3. Get a pot of cash together if you possibly can to pay legal fees and short-term expenses – this should be in a separate bank account in your name only. If your partner controls the cashflow and you can’t afford legal help, this is a massive problem.
4. Get forensic about understanding your cash flow and expenses. Look through your bank statements, work out where you spend cash. Budget for holidays, unplanned expenses (car breaking down, roof falling in) – this checklist is useful. How much do you need to maintain your lifestyle? Be realistic. Write this down.
5. Speak to your bank, credit card providers, etc and let them know your change of circumstances. If you feel that your soon-to-be ex is a bit of a risky type, you might consider freezing your joint accounts, so that they can’t run up debt in your name.
6. Make an initial list of your and your partner’s income and assets – that includes houses, pensions, salary, inheritance and so on. This can be approximate at first – but get a feel for what you’re looking at. The Money Advice Service has a Money and Divorce Calculator. It's helpful.
7. Think about whether you need a lawyer. If your divorce is simple with no children and few joint assets, you might not need one. Any complexity or disputes and you’ll need one, so you should instruct one as soon as possible.
8. Understand your child maintenance entitlement or obligations. This is a useful guide for those with a household income of less than £156,000. This Government calculator will tell you the number.
9. Change your will – divorce does not invalidate your will and you need to ensure that it reflects your current wishes. If you don’t have one and you do have kids, it’s a good time to get on the case. All the admin at a time of emotional upheaval is hard – you could just do a quick cheap one online and finesse it once you’re through the eye of the storm.
10. Repeat step 1. But also consider putting a breathalyser on your phone. You may be dealing with someone intent on gathering an evidence base. Save the drunken rant for the cat if possible. They will rise above it and still love you in the morning. After you've fed them.
1. The Family Home
Usually, the whole point is that you can’t live together, so one of you has to leave the family home. If you’re the one moving out, be careful. It doesn’t reduce your entitlement to the proceeds from a sale, but it may give you less negotiating power. As to who pays the mortgage, that all depends whose name is it in. Who would the bailiff chase? Usually it will be in joint names and it always still needs paying. Most banks are sympathetic to the situation and may offer you a payment holiday to ease the strain, but this is not a long-term solution so you’ll ideally agree a solution with your ex to tide you over the short-term. Equally, you shouldn’t assume that you will have the right to stay in the family home indefinitely.
In the long-term, the value of the house will probably be split 50/50 or at best 60/40 unless there are loads of other assets. You probably won’t have enough capital to buy your ex’s share, so the house will almost certainly have to be sold in the longer term. Things to think about : How much is the mortgage every month? How will you split the payments until you have a longer-term agreement? Who do you think will move out? Will it be viable to remain in the family home? How much you can personally afford to pay on the mortgage every month?
This is a really common mistake - people forget about the boring old hidden away pension BUT (especially for couples divorcing in later life) it's not uncommon for this to be worth more than the equity in the house.
Also, if you have given up work to have children, you may have lost your state pension entitlement (check here). What does this mean for you and a fair split post marriage?
How much is your ex's pension worth? If this is split up, you may need to sign a pensions order. You have a few choices.
1. You're given a % share of your former partner's pension savings
This is known as pension sharing.
2. The value of the pension is offset against other assets like a house.
This is known as pension offsetting.
3. Some of the pension is paid to your former partner.
This is weirdly known as pension earmarking. It's like a form of maintenance paid from a pension when it is drawn down to the former partner. Bit complex and can mean you're still dealing with your ex decades down the track.
If you are going down the pensions sharing route, you'll need to nominate a home for the chunk of a pension you're going to get. This is often not a decision you can face making on top of all the other cr@p going on. Holly says,
- "Honestly, if you just want a decent solid home for a pension for a few years whilst the dust settles and before you have more time to get your head around this, I'd look at Fidelity or Hargreaves Lansdown. Big solid brands. Not going to go anywhere. OK on fees. And just go for a low-cost 'passive multi-asset fund' from someone like Vanguard's Life Strategy range. If you're in your 40s and it's ages till retirement pick the 80% equity or the 100% equity option. If retirement is closer you may want to be more conservative with the 40% or 60% equity option."
If you are seeking maintenance, consider what your (reasonable) monthly expenses are. Higher income earners might want to ask a financial adviser about cashflow modelling which could form a useful basis for a discussion. More recently, courts have been obliged to consider a termination of spousal maintenance with a transition to independence as soon as it is ‘just and reasonable’. This means dependent spouses can no longer rely on receiving maintenance indefinitely and may need to find a way to support themselves.
And women NB. If you are the top-earning spouse, you will probably have to support your ex-partner. High earning women should ignore what their outraged parents say – equality means equality and this is (theoretically) gender neutral today.
Other considerations: Capital gains tax – if you are selling assets and dividing the proceeds, don’t forget that there could be a capital gains tax risk. This will not apply to the family home, which is generally exempt, but may apply to other properties or stocks and shares.
5. Free Calculator
The Money Advice Service is an impartial Government-funded site which has some great advice (it's a bit dry OK but it's earnest and thorough so stick with it.)
They have a Divorce Calculator which you can download and it is super helpful.
1. Breaking It Down
The key is to try and stay out of court: court costs are ruinously expensive and you may be able to agree a joint plan yourselves. The courts are generally pretty unimpressed with parental squabbling and who did what to who when and you may not get a settlement that is very different from the one negotiated out of court. Who is likely to look after the children for the majority of the time? Will it be a straight split? Will one of you be the primary carer in the term-time? Will you share the holidays 50:50? What would be the best term-time arrangements for them? The Cafcass Parenting Plan is a guide to agreeing the thorny stuff and will give you a framework of topics to discuss – www.cafcass.gov.uk/grownups/parenting-plan
Child support -This is likely to be a significant area of concern, particularly if one party has given up a career to look after children and therefore has no means of providing for them without maintenance from the other. For those with a household income below £156,000, the calculation is relatively straightforward. If a couple cannot agree, they go to the child maintenance service, which has a basic formula – www.gov.uk/calculate-yourchild-maintenance – whereby the non-resident parent pays roughly 15% of net income if there is one child, 20% if there are two children and 25% if there are three or more children with reductions for any overnight stays.
2. Worked Example
There are formulae for calculating spousal and child maintenance that apply to almost everyone.
As an example, if your spouse earns £40,000 a year and plans to have the children for two nights a week, you might be looking in the region of £105 per week.
Vicki McLynn, a family and divorce lawyer at Slater and Gordon, says that in practice this formula informs most child maintenance calculations: “Because we know that if a couple can’t agree, it will go to the child maintenance service, we tend to be guided by that formula. It is rough and ready, but it gives a pretty good indication.” The complexity comes where there is income of over £156,000. For this, says Vicki, one party can apply to the court for top-up maintenance on top of the maximum. She says: “The court could make a school fees order, for example, or an order for a one-off payment – usually with an educational purpose, or if the child has disabilities.” Also, the child maintenance service only deals with payments up to 16, or 20 if the child is in fulltime education. If support is needed beyond this point, the court can plug the gaps.
This is highly emotive stuff. Don’t try and rush into this straight after a marriage breakdown. It’s best to try and gather your thoughts, to work up some ballpark ideas of what is reasonable and to try and have a calm discussion with your ex in a neutral environment first. Deep breath. Don’t discuss any of this in earshot of the children. Even if you have a voodoo doll of your ex, you can at least take some pride and the moral high ground by keeping the children out of any tough discussions or bad-mouthing.
3. Things To Think About
Be realistic about how much you spend on the children – draw up a budget and include all core expenses including a fair proportion of bills (mortgage, utilities, insurance etc) , food, clothing, clubs etc. Get an idea from the child maintenance service about what the regular monthly payments might be for the income levels involved. Try and understand what the child care agreements might look like and how many nights the children might spend with whom.
Pick your battles. A court case with barristers and solicitors will easily cost north of £2,500 a day.
Maintenance for a spouse is calculated separately from maintenance for children and is far less formulaic. In simple divorces you may want a ‘clean break’, which ends the financial ties between the couple on divorce. However, most cases aren’t so simple, particularly if there are large pension pots involved. If it's complex consider talking to a financial adviser - you can pay an hourly fee for advice which may well save you a lot of money in the long-run. Expect to pay about £125 - £250 an hour.
1. Where we do go from here
Any settlement has to last a long time and you may need to generate an income from it. With interest rates at record lows, this isn’t easy. As such, it may be worth consulting a financial adviser (www.financialplanning.org.uk and vouchedfor.co.uk will help you find one in your area), who will walk you through the main things to consider. Some advisers will do ‘ad hoc’ projects for an hourly fee (typically £150 – £250). You may only need a one-off session to point you in the right direction. Alternatively, give financial planners Magenta a call for a free 30-minute phone call to start you off.
Divorce can take a few years to wash through from the decision that this is the only path left, to getting that decree absolute through the post. And if you have children the legal shenanigans can rumble on for years. It is an awful process to navigate. Most people who have been through it will tell you not to rush, not to try and use the courts for one-upmanship (the only people who win are the lawyers) and to keep any children out of it.
Find a divorce lawyer
Find a financial adviser
2. Dont forget to re-do the will
It's the last thing you will feel like doing but it's important to re-set your wishes and preferences and to do so formally. If you have kids, it's actually a useful and hard exercise which includes thinking about your wishes and preferences for them if anything happens to you.
You can choose lots of different routes from doing an interim DIY cheapy - you can get a will kit for about £12 on Amazon - you can look online at solicitors such as Irwin Mitchell for a mid-range option, or going through a local solicitor will probably cost about £500 - £750 unless you are a Greek shipping magnate with horribly complex affairs!
3. Drink wine, eat cake and ask your friends for help
Good luck. Surround yourself with friends and don't put pressure on yourself to have all the answers in a few short months. Probably best not to copy the German guy who, when ordered to give his wife half the assets, took a chainsaw to the family car and cut it in half.
And hold on to the thought that there is light at the end of the tunnel and the vast majority of us transition from Distress to Delight and a new better life at the end of it. Dating someone inappropriate can be quite therapeutic. Allegedly.