Choosing the Right Financial Adviser
Experience of Dealing with Finances on Separation
One of the first things to look for in a financial adviser is their experience of assisting in the division of assets on a couple’s separation. Familiarity with the court process in England and Wales on separation, including those governing property division and pension sharing orders, is essential to providing accurate and tax-efficient guidance. Your family solicitor is likely to be able introduce a suitably experienced financial advisor but it will, of course, ultimately be your choice as to whom you work with.
Accreditation and Certification
A financial adviser should be appropriately accredited and regulated and their details can be checked using the Financial Conduct Authority’s register. This accreditation ensure that the adviser adheres to industry standards and ethical guidelines.
A successful divorce often requires collaboration between your financial adviser and solicitor. Ensure that your chosen adviser will work closely with your divorce solicitor to ensure a seamless coordination of legal and financial strategies. A financial adviser’s involvement should not start once the settlement is reached; instead, a financial adviser can assist as early on as assisting in preparing the financial disclosure that you may be required to provide as part of a divorce. Thereafter, advice from a financial advisor during settlement negotiations as to the financial implications of the structure of your settlement will be helpful in identifying your goals and objectives.
How a Financial Advisor can Assist
A key point of many divorces is how the combined pension pot (covering both workplace and personal pension plans) of the separating couple is to be divided. Many people do not appreciate that pensions built up during the marriage (the duration of which can often be extended to include any period of cohabitation in various circumstances) are assets that can be shared on a divorce in a variety of different ways.
The orders that the Family Court can make in relation to pensions are varied. There are pension sharing orders, pension offsetting orders and pension attachment orders and each order has its own specific rules, nuances and implications. Establishing the true value of the pension “pot” can also be tricky for a number of reasons including, but by no means limited to, (i) whether the pension is a public service pension, (ii) whether the pensions were generated by being in the armed forces of police force, (iii) whether the pension is a final salary or career average scheme, (iv) whether the pension is in payment, (v) do either of the spouse’s pension contributions exceed the lifetime allowance (vi) whether the pension is based on or off shore and many, many other considerations. Your financial advisor and your solicitor will need to work collaboratively, often with the assistance of a pensions specialist (known as an actuary) in order to address these issues.
Importantly, the final transfer value of the pension is determined on the day before the pension sharing order comes into effect. In times of market volatility this can result in significant fluctuations to the value of the pension pot and in turn this may result in potential adjustments to the expected retirement income and the settlement understood to have been reached between the couple.
During the course of negotiations, one party to the marriage may decide that rather than seeking a share of their spouse’s pension, they would rather take more of the liquid capital, such as property or cash and vice versa, in that parties with substantial pension assets may wish to keep them intact. In these cases, the parties may agree to, or the court may order, “offsetting” so that rather than splitting assets down the middle (in cases of long marriages) one party keeps more cash and the other keeps more of the pensions. Whether this is suitable depends on the circumstances on the individual case and your financial advisor will be able to guide you through this complex process with the assistance of your family law solicitor.
A financial adviser’s role with is twofold; advising at the outset on the likely pension income (often with the benefit of an actuary’s report or the scheme’s administrator) and the future value or income of other assets in the relationship to inform negotiations and the Court. And later by facilitating any pension sharing order by transferring the pension pot(s) as necessary.
Wills and Lasting Powers of Attorney (LPA)
A holistic review by a Financial adviser of an individual’s estate after the ending of a marriage is sensible as a party’s wishes for inheritance and beneficiaries will likely have changed.
Divorce and the dissolving of civil partnerships affects the provisions of any pre-existing Will. Any bequests made to a former spouse or their appointment as a trustee or executor of your estate will be invalidated as a result of a divorce and, as such, it is always prudent, following the formal dissolution of your marriage of civil partnership to review your testamentary wishes.
If an LPA exists, divorce or the dissolving of a civil partnership will typically revoke the appointment of a then ex-spouse or ex-partner as attorney. Therefore, it’s crucial to review any LPAs to ensure that someone else is appointed to make decisions in the event of illness or loss of mental capacity. If a replacement attorney (or appointed multiple attorneys to act jointly and severally) is designated, the LPA will remain valid.
Many couples hold joint life insurance policies, often with one party covering the premiums. If the premium payer stops or cancels the policy after a divorce, the other partner may lose coverage they were relying on.
To mitigate this risk, independent life insurance cover should be obtained. It may also be sensible to obtain (or maintain) a policy on an ex-spouse who is paying maintenance with a benefit amount sufficient to replace maintenance income. Your family solicitor and financial advisor will work collaboratively to ensure that the division of any life insurance policies is properly taken into account as part of any financial settlement upon divorce. Similarly, the circumstances of your case may mean that you receive ongoing monthly support from your former spouse, be that maintenance for any children you share or maintenance you might be entitled to in your own right. In these circumstances, it might be appropriate to investigate the viability of an insurance policy being taken out or death-in-service policy being assigned to provide security cover for such payments in the event of your former spouse’s premature death.
Post Separation Support
A financial adviser can assist with the post-divorce financial planning and management of assets. This can include:
- Investment Portfolio Adjustment: By reviewing and, as necessary, adjusting any investment portfolio to align with the party’s post-divorce financial goals and risk tolerance. This may involve selling or restructuring investments to provide income or achieve specific financial objectives.
- Tax Planning: Separations can have tax implications, including capital gains tax, inheritance tax, and income tax. Advice on navigating these tax issues, ensuring compliance with tax regulations and that the party’s fresh financial affairs are managed in the most tax efficient manner.
- Retirement Planning: Along with dealing with any pension sharing order, as discussed above, it may be prudent to create a new retirement plan considering the party’s altered financial situation.
- Budgeting and Financial Planning: By creating a post-divorce budget which considers your new financial circumstances and plans for day-to-day expenses, debt management, and setting long term financial goals.
- Management of a Duxbury Fund to generate income.
Successfully navigating a divorce requires a team you can trust. By working together your solicitor and financial advisor can provide you with sound advice, empathetic support during the process and provide you with the best opportunity for financial security post separation.
Put simply working with someone you know, like and trust should hopefully make what is often a stressful and time consuming process as straight forward and successful as possible.
This article was Co-Authored by Alex Curran, Senior Associate at Payne Hicks Beach and Toby Freeman, Financial Advisor at Forbes Financial (Partner Practice of St James’s Place).