The start of a new year is marked by a fresh start and making resolutions. And for those in the legal profession, a rise in the number of couples seeking a divorce. If you’ve had clients approach you about divorce, recommending financial planning services alongside yours can help them to prepare for the next stage of their life.
The pressure of trying to create a perfect Christmas can lead to married couples deciding to split up in the new year. This year, with the added pressure of lockdown, legal professionals could be even more in demand. In the first week of January 2020, online searches for ‘I want a divorce’ increased by 230% compared to December 2019, according to research from Richard Nelson solicitors.
Divorce means a huge upheaval in lifestyle and finances. Yet, just 3% of couples in the process of divorcing have sought financial advice, according to Legal and General. Taking advice during the divorce process can help ensure the separation is equitable and that both parties understand how their situation will change.
Recognising changes in goals and aspirations
While financial planning involves looking at financial productions, like savings, investments, and pensions, it starts with what a client wants to achieve.
Those going through a divorce often find that their aspirations have changed enormously. Previous goals may have been linked to, or driven by a partner, meaning they are no longer applicable. Priorities and concerns are likely to have changed due to a relationship break up too.
The financial planning process is an opportunity for clients to think about what they want to achieve in the short, medium, and long term. It could range from taking more time away from work to providing financial support to help loved ones get on the property ladder. Beginning to think of goals separately from those of a partner can be difficult. However, it’s an important step that can make sure they’re on track in terms of finances and help them get the most out of the next stage of their life.
A client may still have some of the same goals and priorities but may now need to look at a different way of achieving them. For instance, ensuring a child’s education will be paid for may need a very different financial approach when couples split up.
Financial planning aims to give clients confidence in their financial situation so they’re free to focus on what’s most important to them. It’s valuable at any point in life, but after a big life event like divorce, it can help provide a sense of being in control and peace of mind.
Managing the day-to-day
Divorce can have an immediate impact on finances.
Whether a client relied on an ex-partner’s income or will now need to pay for all housing costs, it’s important those getting divorced review their day-to-day income and expenses, creating a budget that suits their new circumstances. It’s a step that can help them stay on the right track and understand the financial implications from the outset.
The Legal and General research found that three in ten women and two in ten men faced financial struggles following a divorce. A short-term plan can help them organise finances accordingly, so they’re not faced with financial vulnerability.
In some cases, a client may have more disposable income following a split. In this case, reviewing finances can help them get the most out of their money, such as deciding whether a savings account or investing is the right for their plans.
Remembering to look forward
When divorcing and weighing up finances, it’s understandable that many people focus on the short-term impact. But the effects can last for decades.
Pensions, for example, are often among the most valuable assets couples have. Yet, the research indicated they’re often overlooked. More than a quarter (28%) of women and a fifth (19%) of men waive their rights to a partner’s pension. It’s easy to see why this might be the case when it comes to pensions, but not other assets. A savings account or property can feel far more tangible than pension investments, which may be inaccessible for several decades. However, it’s a decision that potentially means divorcees will struggle in retirement.
Even when divorcees don’t waive their rights to an ex-partner’s pension, there can be pitfalls too. They will, for instance, have to decide how to take their portion, the best way to save or invest it until their retirement date, and decide how to access it when they do retire. Financial advice at the start of this process can help clients understand how their retirement may be affected by the decisions they make during divorce.
Financial planning can help those going through a divorce consider their long-term financial security and lifestyle at a time when they’re likely to focus on other things.
Supporting clients through divorce
Legal professionals will understand how important it is to support clients through their divorce. But once the papers are signed and the dust has settled, ongoing advice and support can still be valuable. It can help clients make the most out of their next steps and have confidence as they do so.
We work in partnership with solicitors and other legal professionals to deliver the services clients need, whether that’s ongoing financial advice after a divorce or referring one of our existing clients to a solicitor who we work closely with. Please contact us if you’d like to discuss how we can work together to support clients.