Flora Maudsley-Barton is a Chartered Financial Planner. This month, she gives us the benefit of her experience in financial rebuilding after divorce.
After the heat of the split and the acceptance of divorce and then the (tense?) negotiations, I help people to re-build their finances. Of course, financial counseling is important all the way through the divorce process - I do my bit to help reach resolution, but the action itself tends to be part of re-building your finances.
Here are some tips, if you'd rather do it yourself…
But first, a warning so that my legal people don’t get their knickers in a knot… Warning! If you were my client, I would ask for a lot of information from you before finalising my recommendation, so none of this can be relied upon without further research. I would also expect to have detailed discussions about your willingness to accept risk, and to ascertain which risks concern you most. If you are unsure, always seek advice.
1. Set about saving up the money that the divorce has cost, the “rainy day fund”. It is tempting to forget about that, but it’s so important to keep saving, even if you're only putting aside a few pounds every month. Yes, you won’t save much, probably less than you could put on your credit card, but at least you don’t have to pay interest on anything you’ve saved.
2. Are you planning to get back onto the property ladder? Do some research first, you could try: www.moneymadeclear.org. Think about how much can you afford to pay? What costs do you need to budget for? What are the risks? Where will your deposit come from? Will you need to save a larger deposit? Are you happy to borrow as much as you can?
3. Have you agreed to take somebody off the mortgage, so that one of you can stay in the house? Start by approaching your existing lender, this will be particularly useful if you already have a mortgage, and there would be a penalty if you were to redeem it. If your existing lender says no, in my experience there are often other solutions – it might be worth paying for some impartial advice at that stage.
4. Think about your financial risks. What would happen if your maintenance stopped? If your ex becomes unemployed? Too ill to work? Or, er, brown bread. It’s worth having a look at “New Start”, it’s an insurance policy designed for maintenance payments. I’ve found it less expensive than trying to build the cover separately.
5. Do you need to deal with a pension sharing order? If you browse around Wikivorce, you’ll see that pensions can be tricky. Often overlooked, perhaps because they seem less interesting than the family home, and they’re not so urgent. But, don’t forget, the pension is probably the second most valuable asset you’ll have.
If you're confident to tackle your pension share yourself, think about… What should you do with it? Can you draw the pension now? Should you draw it now? Will your employer let you amalgamate it with your work pension… and if you can, should you? Again, it might be worth paying for some impartial advice, perhaps a consultation to discuss your options? A good financial planner will be willing to do that, and it really might be worth paying a little more for a Chartered Financial Planner. “A what?” Have a look here: www.findanadviser.org. Yes, that’s what I am. If you're in the northwest of England, we can talk, if you like, via our website.
My clients ask for my help because I do this every day, so I’m quicker at it, and they want to concentrate on other priorities. Often, they tell me that it’s my knowledge, as much as my advice, that they’re paying for. However, despite what we financial planners like to think, you could do most of the things we do for yourself. This guide will help to steer you through. Good luck!