I always recommend that couples sort and divide their finances before beginning divorce proceedings. It’s not an easy process. You can go to court and ask a judge to divide your assets, but it’s much better if you can work together with your ex to find a fair way of splitting your finances.
Remember, the aim is to ensure both of you become financially independent rather than simply dividing money and assets equally.
What are marital assets?
Many divorcing couples find that most of their money is tied up in marital assets. Matrimonial or marital assets are any financial assets that you and your spouse have acquired during your marriage. They include:
- The family home
- Your pensions
- Any savings and investments
- Any businesses owned
It’s vital that divorcing couples are honest and open with each other when dividing these assets. You have to be mindful that all combined assets must be fairly divided even if one person earned more or contributed more financially during the marriage.
The UK Law
In England and Wales, the assets acquired during your marriage legally belong to both you and your spouse. This includes pensions you have paid into during the marriage and any inherited money you received during your marriage.
You may have assets that you consider to be non-matrimonial assets. These are assets you acquired before you were married or after the date of your separation. They may include:
- Capital gained through earnings or investments
Make sure you fully disclose all assets, even if you believe they are not to be divided. If you do have to go to court, it will look at how honest you were and may look unfavourably at someone who chose to try and hide any assets.
How can we divide our marital assets?
What will happen to the family home?
One of my clients’ biggest worries is about the family home. Who will keep it? Can they afford to keep it?
The family home is usually one of the largest matrimonial assets and you and your ex need to think carefully about how you can divide it.
There are a few different options you can choose to do:
- You can sell the house. Many of my clients realise early on that neither can afford to keep the house on their own or they don’t want to live there now the marriage is over. The money raised by the sale can be used to buy two individual homes if you can afford it.
- One of you can buy the other one out.
- You can keep the home and one partner will continue to live in it until a certain agreed event such as the youngest child leaving school.
- You could transfer part of the value of the property from one partner to the other as part of the financial settlement. The partner who ‘gives up’ a share of ownership rights still keeps a stake in the house and will receive a percentage of its value when the house is sold.
What is a Mesher order?
In England and Wales, you can get a Mesher order. This allows you to delay the selling of the house until a specific event triggers its sale. Such events could be the youngest child turning 18 or finishing university.
Another option is a Martin order. This defers the sale of the house and gives one person the right to occupy the house for life or until remarriage. A Martin order is usually used when a couple have no children and the other person doesn’t immediately need the funds from the house.
Do I have to divide my pension?
Quite simply, yes you do. It’s classed as a marital asset and it’s probably the second-largest asset you have after the house.
Pensions are complex things at the best of times so if you want to avoid going to court, your best option is to talk to a financial planner. They’ll be able to help you work out how to divide any pensions you or your partner pay into.
Because pensions are tricky, you need to think carefully about your options. I have written an article dedicated to dividing pensions. You can read it here.
What will happen to our savings and investments?
If you are divorcing amicably, dividing any savings and investments you have should be pretty straightforward.
How you separate your savings will depend on what type of saving accounts you have and whose name they are in.
If the savings account is in your name, you can simply transfer money across to your ex-partner.
But remember, if you have a notice account, you must give the bank notice, or you may lose some of the interest.
Fixed-rate saving accounts can be tricky too. You may have to wait until the term is finished before you transfer. If you don’t, you may lose a substantial amount of interest.
These will never be in joint names so it’s up to the account holder to transfer money directly from the ISA to their ex-partner’s account.
What do we do with our investments?
Many couples have investments. These investments may include:
- Investment bonds
- Stocks and shares ISAs
- With profit policies
- Unit trust investment trusts or OEICS
Every year you should receive a statement telling you how much your investments are worth. However, this may not be the value you will receive. If you are thinking of cashing them in or transferring them, ask the investment company for an up-to-date valuation or a transfer or surrender valuation.
Should we cash in our investments?
This is when seeking independent advice from a financial advisor will help. Cashing in investments may not be your best option.
You need to understand if you will have to pay Capital Gains Tax or pay charges for cashing in investments early.
If you own shares, they can be transferred to your ex-spouse or you can sell them and give money instead. Again, a financial planner will be able to advise on your best option.
What if we need to go to court?
Hopefully, it won’t come to that, but if you do need to involve the courts, they will consider:
- Each person’s income and earning capacity they have now and in the near future
- Each parties’ financial needs, obligations and responsibilities
- How long you were married and how old you both are
- If either of you has any physical or mental disabilities
- The contributions you both make to the welfare of the family including caring for children and looking after the home
- The conduct of each party is viewed to impact the proceedings
It is far better for you and your ex-spouse if you can come to a financial agreement together. Going through a divorce is stressful enough and keeping things amicable will make things easier for both of you. For help with any financial matters, I can help. I’m a financial planner that specialises in assisting divorcing couples to organise their finances. I’ll work with you to ensure you can become financially independent. If you want to find out more about how I can help, please book a free discovery call.