We are more likely to accumulate wealth in our 40s. You might see your mortgages paid off and higher wages. Your kids may be flying the nest. And, you could also notice an increase in investment funds.
However, statistically speaking it’s when most people get divorced. According to statistics from the government, divorce rates for men are 46 and for women 43 respectively.
The more wealthy people who stay married, the better. The average wealth of married affluent people is currently £780,405 compared to £629,826 for divorced people, according to research conducted by Handelsbanken Wealth Management.
While most of us feel better in our 40s, this age is when many people file for divorce.
It’s a gap of £150,000 and this number is set to increase. Handelsbanken says the impact on wealth 10 years ago was £121,378 with married people worth an average £612,500 compared to £491,121 for those who were divorced.
Divorce can be painful for all couples, regardless of their income or wealth. It is due to high legal fees and the splitting of households into two with separate energy bills, council taxes, and transportation costs.
You can take steps to minimize the financial consequences of a divorce, and to gain some (or all) of your wealth back.
Although it is not possible to immediately regain your wealth after divorce, these steps can help.
1. Ask for financial advice
OpenMoney’s most recent Advice Gap Report reveals that just five percent of divorcees were given financial advice.
OpenMoney founder Anthony Morrow says that it is impossible to predict how long it takes to get back to financial health after a divorce. Each person’s situation and financial goals are different.
“If you have a goal to achieve, an advisor should be able take a comprehensive view of your financial situation and create a plan for you to reach it.
2. Invest your money
You may feel tempted to spend a lump sum, or make regular payments on luxuries such as holidays. Advisors suggest investing your money to help you recover wealth.
A defined benefit pension is a valuable asset that should be valued and planned for.
Emma Watson is Rathbone Investment Management’s head of financial planning. She says that investments tend to outperform cash in the long-term, so it may be worth considering investing some lump sums or continuing maintenance.
Financial planners can also help with future goals by helping you to understand them.
“The financial planner will then be able to assist you in putting cash away that won’t be needed for the immediate future to make it work over the long-term.
Reena Mistry is a financial advisor with Flying Colours. She says: “No matter what amount you invest, ensure your investments are tax efficient and use the tax allowances available to you.”
Also, consider any benefits offered by your workplace. Mistry states that if your employer contributes to the pension, you can still get valuable benefits from the workplace’s pension.
Reena of Flying Colours believes that if you are eligible for your workplace pension, it can be a great way to get valuable retirement benefits. Even if the employer is contributing to the plan.
3. Do not settle any disputes in court
It can cost a lot to drag your divorce case through the courts. An agreement reached through mutual consent is more efficient than fighting the divorce case in court. It can also prevent you from any potential emotional harm.
James Brien, author of ebook ‘How to avoid common mistakes that can delay divorce’, and founder of Easy Online Divorce, says: ‘A disputed financial divorce settlement will cost spouses somewhere in the region of £15,000 to £25,000 each in legal costs.’
“With so many at stake, our clients are urged to adopt a collaborative approach between themselves and through mediation.
Numerous companies offer legaltech services that, by using artificial intelligence software can help lower the costs of legal advice.
4. Do not buy another home as you did.
Because you and your spouse had two incomes, it was possible to purchase a larger home. However, if your income is lower than the home you owned before you became an independent homeowner, it’s not a good idea to try to find a comparable property.
Mistry says: “There might be temptation to purchase a house similar to the marital house or keep it, even though this involves borrowing more. But, this could not be possible based only on one income. Be realistic about what type of house is feasible.
“Request advice on how much a mortgage lender will allow you to borrow. Don’t be afraid to shop for something less expensive.
Amy Harris from Brabners believes that many people can focus more on their career by getting divorced.
5. Do not negotiate and split 50/50
Most people think that divorce will result in the division of savings, home and business assets 50/50. This can however be changed.
Fladgate Family Law partner Teresa Cullen says that it doesn’t mean you need to use a scalpel in order to receive 50 percent of your savings or pensions. What you can do is to offset any savings you make for a retirement pension.
Or, one might agree to let someone else keep the family company and the other can get a higher share of the savings, pension, or house. A court wouldn’t be able to make the right decisions, but people are better at deciding what is best for them.
6. Retire to work
Stay at home moms may have a hard time returning to work. But, this can be one of the easiest ways to make money back.
Amy Harris is a Brabners family law specialist. She says that a person’s greatest asset is often their earning ability. This allows them to build, rather than consume, their retirement funds.
James Brien of Easy Online Divorce says disputed divorce settlements can cost between £15 and £25k
“While divorcing settlements are meant to equalize inequalities among spouses, we can be certain that your current earning potential will indicate how much wealth you’ll have after the divorce.
“Gaining wealth from divorce is not easy, but many people find that divorce increases their drive and focus in the chosen field.
There are still options for those who will soon be retiring to join the workforce.
Leon Diamond is the CEO of Livemore Capital. Livemore Capital specializes in mortgages to the over 50s. Over 30% of the single females we see are women. [clients] working past state retirement age.’
7. You shouldn’t abandon your dream of a retirement pension.
Some spouses will try to trade their rights to the pension of their ex-partner to preserve their marital home.
Shona Lowe is a financial planning expert from abrdn.
“It’s important for those who have a defined-benefit pension to recognize the value of this valuable financial asset and plan how they will split it. The value of this is based on how many years you’ve worked, and the salary you earned – so it’s something many feel precious about.’
8. Advise your creditors about the proper division of assets
Jayne Martins (a partner in Royds Withy King’s Family Law team) explains, “As long the couple has agreed on the division and that it has been contained in a court ordered or separation agreement it is impracticable, save in extremely limited circumstances to review a divorce settlement in future.
“Any capital and pension splits cannot be reviewed. However, any spousal maintenance payments are subject to review, and may be adjusted downwards or upwards, depending on the facts.
9. Take into consideration the tax implications
Diverse options to divide pensions can have different tax implications. Lowe cautions that the ability to offset or share pension assets may provide flexibility, and help you structure your settlement tax-efficiently.
“However, you can choose to make this a choice, but the pension income will still be subject to tax.
“So, your ex-partner may own the pension. You should consider how much tax is being paid on the salary. Your income might be subject to more tax than yours.
Talk to your provider if you are unsure about the implications of changes in your circumstances for your pension.
10. Take advantage of our free advice service
Because it was discontinued in 2013, legal aid for divorcing couples is not available. It’s still possible to get legal aid in cases of domestic violence, abuse or child abuse.
You may be able to take advantage of a free consultation offered by some law firms. If you have a limited income, you might also consider a law center.
You can locate a nearby one by visiting lawcentres.org.uk.
There are also some lawyers that will take on cases on a ‘pro bono’ basis – meaning they will work on divorces for free. It is best to get more information during pro bono week which occurs every year in November.