Divorce is not something that anyone plans to go through. Most people would choose a long and happy marriage over a painful separation, but with the UK divorce rate estimated at around 42%, a considerable amount of couples find themselves going their separate ways. While divorce will always be difficult on an emotional level, the practical problems it presents are often underestimated, particularly when it comes to dealing with the separation of finances. Couples will typically have joint financial arrangements with one person in the partnership taking a lead role. The ending of a marriage may therefore present a daunting challenge for someone that suddenly finds themselves financially independent but without the necessary knowledge to manage their assets successfully.
At London & Capital, we have come up with five steps for the newly divorced to put themselves on the road to financial self-sufficiency:
Don’t make rash decisions
The big decisions you make early on once you become financially independent will be some of the most important. Deciding on your living arrangements or how to invest your funds are choices that need to be given careful consideration. Taking some time to mull these things over before moving ahead will be valuable in the long run. You may find that all kinds of advice comes your way from friends or family members who will have your best interests at heart, but resisting the temptation to make quick decisions will ensure you make the right ones.
Embrace long-term thinking
Financial planning is essential for the newly divorced. The joint plan you had with your former partner will now have to be replaced with a plan that is tailored to your own needs. Creating a cashflow model will be useful. This will involve taking an overall view of your finances, looking at your income and expenditure plus your assets and debt. Projections can then be made on your future finances. If you have commitments to meet such as the funding of a child’s education or a mortgage, financial planning will be essential to ensure these are taken care of.
Improve your financial literacy
The financial world can be full of jargon, but it is important that you now get to grips with the basics. Investing is an important part of securing your financial future and understanding how it works is very useful. Everyone is familiar with cash, it’s flexible and can be easily accessed through a personal bank account, however, if the rate of return is lower than inflation the value of your capital will be eroded in real terms. Investment portfolios designed to grow over the longer term will typically include a blend of stocks and bonds and can be tailored to your personal risk profile. We suggest working with professionals who will take the time to explain the terminology, so you feel empowered to make the right decisions. You shouldn’t feel intimidated by your advisers.
Take advice from a wealth manager
Engaging a wealth manager early on is a good way to make sure your wealth is in safe hands. A good wealth management firm can provide sound advice on decisions relating to property and investments and can connect you to experts in areas such as taxation and estate planning. Sitting down with your adviser and exploring what’s most important to you and what you want to achieve over the coming years will ensure your plan is tailored to your new situation.
The complexities and planning of a divorce are increased when you have assets in more than one jurisdiction. It is important that a joined-up approach is taken, working with a team of professionals and ensuring the many potential tax pitfalls when managing worldwide assets are taken into consideration. You will need to consider currency and tax in more detail and ensure the right people are managing your assets so your goals can be achieved without the stress of an unexpected tax bill.
At London & Capital, we aim to help you protect your wealth by providing sensible guidance to make the right decisions, whatever your life circumstances.