Financial Planning Following Divorce
Tyler Lastovich - Pexels
Although we work with clients going through a divorce, often new clients are referred to us once the divorce has been finalised.
Going through a divorce is an extremely traumatic experience and we are always conscious that we may need to adapt our financial planning approach depending on the circumstances of our client.
In this article, I thought I would share some of the financial planning aspects we consider when working with newly divorced clients.
Financial Knowledge and Experience
It is extremely important that we take into account our client’s financial experience and knowledge rather than just the size of the financial settlement. Too many advisers just focus on the amount of money that can be invested.
We deal with clients who are both financially astute and wish to move forward with their financial planning as soon as possible and those for whom dealing with their personal finances is something they are doing for the very first time. For these clients, it is important that we move forward at a pace they are comfortable with.
Professional Network
Following a divorce, often one spouse will retain the existing professional network leaving the other to put together their own team. Over time, we are often asked to make referrals to other trusted professional advisers such as Solicitors, Accountants and Private Bankers.
Financial Administration
Where a client is reverting back to their maiden name, for example, or changing address, various providers will need to be informed. Typically this will involve informing banks, investment and pension providers, mortgage providers and insurance companies.
Bank Accounts
For those clients who are now dealing with their finances for the first time, ensuring that there is sufficient liquid cash in the right account is often a priority. Where multiple accounts are required, including overseas, we often work with a client’s private banker to set up the appropriate accounts and to ensure that all direct debits are set up correctly. We also make sure that minimum balance levels are set.
It is important that clients feel reassured that their immediate cash needs are being met. Sometimes this can be as simple as a client knowing that they can pay for lunch with their friends.
Financial Plan
Once clients have the peace of mind that their day-to-day cash requirements have been met, it is important to consider longer term planning and this is where lifestyle financial planning comes into play.
We work with clients to assist them in articulating the lifestyle they want to lead and then we help them to achieve and maintain that lifestyle.
By fully understanding the client’s objectives, we can design the most appropriate financial planning strategies, whether that be to generate an income, to accumulate further capital, to re-build a pension fund or to pass monies to the next generation.
Insurance
As part of any good financial planning strategy, we will review a client’s protection policies and determine whether these need to be amended or new policies taken out.
Wills and Lasting Powers of Attorney
It is important for a client to review their will following divorce and we work closely with Solicitors in this area. Although an existing will remains valid, the treatment of an ex-spouse, if they were named as a beneficiary, will change unless expressly stated otherwise. It therefore makes sense to ensure that clients wishes are fully reflected in their will.
Where a Lasting Power of Attorney (LPA) is in place, an ex-spouse will automatically be removed. If the ex-spouse was the only named attorney or was instructed to act jointly with another attorney then the existing LPA is void and a new one needs to be drafted.
George Desipris - Pexels
Pensions
Along with property, a pension can be a significant asset that could be divided as part of the financial settlement. Where a client has been subject to a pension debit, it is important to formulate a strategy for re-building the pension fund. For those clients who receive a pension credit, it is important that this is invested in line with the client’s long-term objectives.
Prior to divorce, most clients would have completed an Expression of Wish form nominating their beneficiaries should they die before taking benefits. In many cases, their spouse would have been nominated. This should now be reviewed and a new Expression of Wish form submitted.
Wealth Management
Wealth management forms part of any long-term financial planning strategy. It is important therefore that risk profiles and investment objectives are reviewed to ensure that wealth is appropriately managed. This is particularly important where investments were previously owned by an ex-spouse with a different risk profile. Furthermore, investment objectives may have changed following divorce, for example, from capital accumulation to income generation.
It is also important to consider tax planning and ensuring any portfolio is managed as tax efficiently as possible.
Summary
We know that it can be daunting to tackle financial planning matters soon after a divorce and this is why we work with clients at a pace that they are comfortable with. By taking stock, reviewing their financial planning position and setting longer term goals, clients can feel much more in control of their financial planning position.
Contact Us
If you would like to discuss your financial planning position or you are a Family Solicitor looking to make a referral, please do get in touch.
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