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Getting divorced is one of the most stressful experiences any of us can face. Amid the emotional upheaval of separation, it’s easy to overlook important financial issues or to agree to arrangements that may not be in your long-term best interests.
Getting this wrong could prove costly in the years ahead, which is why it’s crucial to make sure you walk away with the best possible financial settlement. While the emotional fallout of a split often takes time to settle, having confidence that your finances have been divided fairly can at least provide some peace of mind.
We’ve teamed up with England & Derbyshire LLP to explore some common financial mistakes that divorcing couples make, and how to avoid them.
Their solicitors draw on over 40 years of combined legal experience to provide trusted advice with a personal touch. They tailor their services to each client’s unique needs, and specialise not only in family law, but also in civil litigation, professional negligence law and motoring offences.
1) Focusing on an immediate settlement rather than the long term
Once you’ve decided to go your separate ways, there’s often a strong desire to reach a settlement quickly and get on with life. Divorce is often very painful, and the appeal of closing this chapter as soon as possible so that both parties can start moving on is completely understandable. However, rushing into an agreement can mean that longer-term financial needs are not fully addressed.
In particular, there may be too much focus on what feels fair in the moment, rather than on how sustainable the settlement will be over the years ahead. Future changes in income, rising living costs, health issues or unexpected expenses can all have a significant impact, yet they are not always factored into negotiations.
How to avoid it: Try to look beyond the headline figures in your settlement and consider how your finances will work day-to-day once the divorce is finalised. This means assessing your post-divorce income and outgoings carefully, including regular bills such as utilities, council tax, insurance and maintenance costs, as well as longer-term expenses like anticipated home repairs and replacement of major items.
Drawing up a realistic budget can help you understand what you can comfortably afford and what changes you might need to make. For example, even if you’re attached to your family home, choosing a smaller or less expensive home with lower ongoing costs may offer greater long-term financial security.
If you are unsure what steps you should take, England & Derbyshire are always happy to have an initial chat with you at no cost.
2) Not factoring in pensions
When couples divorce, they often focus their attention on the family home, along with any savings or investments. In the process, pensions can be overlooked or treated as an afterthought. However, this can prove a costly mistake. For many couples, pensions are one of the most valuable assets they own, sometimes worth as much as, or even more than, their property.
Failing to properly assess pensions can result in a settlement that looks fair on paper but leaves one partner at a significant disadvantage later in life. It is particularly important to factor in pensions if one person has taken time out of paid work to care for children or elderly relatives, as they may have built up much smaller pension entitlements of their own.
How to avoid it: Gather together details of every pension you and your ex-partner hold, including workplace, personal and any older schemes that may have been forgotten about. If the information you have isn’t up to date, contact the pension providers directly to request current valuations.
Once you have a clear picture of the total value of your combined retirement savings, you can consider how they should be divided. This is usually done in one of two ways, depending on your circumstances and the type of pensions involved:
- Pension sharing: This is essentially when pension benefits are split when you divorce, and typically, the partner without or with a small pension receives a share of their partner’s benefits in their name, such as via a pension sharing order.
- Offsetting: This takes into account other assets, with the value of any pension entitlement being offset against other assets.
Whichever route you choose, it must be formalised in a Court order, regardless of whether you’ve agreed on your financial split or it’s imposed by a judge. A solicitor can help you to draw up the paperwork that you need.
If you find pension jargon confusing or are unsure how different options could affect your long-term income, it may be a good idea to consider speaking to a financial adviser alongside your solicitor. They can help ensure any pensions are accurately valued and shared in a way that is fair.
Starting again later in life: 10 essential steps to help you plan for divorce
If you’re feeling uncertain and overwhelmed about what comes next, a pre-divorce checklist can help you stay organised and in control, helping you approach the future with greater confidence.
In this free 10-point guide, England & Derbyshire Solicitors share 10 essential steps to help you plan for divorce thoughtfully, covering the emotional, legal and financial considerations that matter most.
3) Failing to adjust joint financial arrangements
Many couples have shared financial arrangements, whether it’s a joint bank account or a mortgage taken out in both their names, or a shared credit card account. However, until joint arrangements are formally closed or changed, an ex-partner could still take money from a shared account, increase an overdraft or run up debt.
If your name remains on these agreements, you could still be responsible for this debt, regardless of what you and your ex have agreed between yourselves.
That means if your former partner stops making repayments, you can be chased by the lender. Not only that, but any late or missed payments will show up on your credit file, which could affect your chances of getting a mortgage or any other form of borrowing later on.
How to avoid it: If you want to make sure that your finances are properly separated when you divorce, you should start by listing every joint financial product you have as early on in the process as possible.
If your salary or pension is still being paid into a joint account, it’s important to redirect it as soon as you can. Leaving money in a shared account can create problems if communication breaks down. If household costs such as rent, utilities or the mortgage are being paid from that account, set up a different way to cover them so nothing is missed.
It’s also a good idea to let the bank know you’ve separated, too. Many banks can temporarily restrict a joint account so that both people must approve withdrawals or changes.
Don’t overlook credit cards either. Despite what many people think, there’s no such thing as a joint credit card. One person is always the main account holder, and ultimately, they’re responsible for all the spending, including anything charged on an additional card held by their ex-partner.
It’s crucial to separate your finances properly, so you may want to seek legal and financial advice, especially where property is involved.
4) Neglecting to update wills and insurances
Wills, insurance policies, power of attorney forms and pension nominations don’t automatically change when you divorce, so it’s very important to go through all your financial documentation to ensure it reflects your new status.
If you don’t actively update key documents, an ex-partner may still be legally entitled to inherit money when you die or make decisions on your behalf.
How to avoid it: Go through your financial paperwork to see whether your ex is mentioned and contact your providers to let them know you’ve divorced.
For example, you may have life insurance which names your ex as a beneficiary. Following your separation, you may want to remove them and name your children or other relatives as beneficiaries instead. Similarly, if you have previously completed a pension ‘expression of wishes’ leaving your retirement savings to your former spouse when you die, you may want to change this so that they no longer stand to benefit.
If you wrote a will prior to divorcing, this will still apply when you separate, but your ex-spouse will be excluded from it, and your estate may be divided differently from how you intended. It is therefore a good idea to review and update your will in this situation.
Starting again later in life: 10 essential steps to help you plan for divorce
If you’re feeling uncertain and overwhelmed about what comes next, a pre-divorce checklist can help you stay organised and in control, helping you approach the future with greater confidence.
In this free 10-point guide, England & Derbyshire Solicitors share 10 essential steps to help you plan for divorce thoughtfully, covering the emotional, legal and financial considerations that matter most.
5) Accepting an unfair settlement
If you’ve already divorced, you might now be questioning whether the settlement you agreed to was fair and worrying that it’s too late to do anything about it. Divorce financial settlements are legally binding and therefore very difficult to reopen and change.
However, if you think that you have evidence that the solicitor acting for you at the time was negligent and has caused you a financial loss in your divorce settlement through bad advice or undervaluing assets, you may be able to make a claim against them.
What you can do about it: If you think you were badly advised during your divorce, you may be able to sue your solicitor for professional negligence within a timeframe of six years from the Consent order date. If the order is Judge’s Order, you have to appeal the decision immediately.
For example, if they didn’t warn you that an offer was well below what a court might have awarded you, or they didn’t advise you on important elements such as pensions, maintenance or housing needs, you could have a case.
You may also have a case against your solicitor if you discover that they failed to identify or pursue assets, such as pensions, business interests, property, investments or overseas assets. Overlooking a valuable savings pot, or failing to obtain proper valuations that could have had a material impact on your settlement, could be grounds for you to take action.
If you’re not sure whether you have a case, it’s worth seeking professional advice. England & Derbyshire Solicitors successfully recovered over £10 million for clients to date in cases involving financial disputes, spousal maintenance, and complex asset division.
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