What to do with a lump sum payment after divorce or dissolution

Money Advice Service

You may get a lump sum as part of your financial settlement. If you haven’t already decided what you’ll use it for, think about your options carefully. Take professional advice if you’re unsure about what to do.

Looking after your lump sum in the short term

Put the lump sum in a savings account while you weigh up your options resulting from the court order, unless you already know exactly what you want to do.

Keep a ‘buffer’ in your current account or in an easy access savings account to pay for unexpected expenses.

Keeping your lump sum safe

Cash you put into UK banks or building societies (that are authorised by the Prudential Regulation Authority) is protected by the Financial Services Compensation Scheme (FSCS).

The FSCS savings protection limit is £85,000 (or £170,000 for joint accounts) per authorised firm.

It is worth noting that some banking brands are part of the same authorised firm.

If you have more than the limit within the same bank, or authorised firm, it’s a good idea to move the excess to make sure your money is protected.

Find out which banks are part of which authorised firms on the Bank of England website.

Money in National Savings & Investments is guaranteed by the government, no matter how much you have.

Find out how your savings are protected by reading our guide, Compensation if your bank or building society goes bust.

Securing your future

There’s no ‘one size fits all’ approach to securing your financial future. How you do it will depend on:

  • how much money you have to save or invest.
  • whether you have any existing debts to pay off.
  • how long you can leave your money in a savings account or invested.
  • how much risk you are prepared to take and whether you can leave your money invested for the long term. For example, would you panic if you invested £10,000 and it was worth £9,000 six months later? Bear in mind that your attitude to risk might vary depending on what you’re investing for.

Dos and don’ts

Do:

  • Do take time to work out what your immediate financial priorities and your long-term goals are.
  • Do make sure you have six months’ expenses in savings before you think about investing.
  • Do take independent financial advice unless you feel comfortable choosing your own investments.
  • Do think about your attitude to risk. Many people who lose money investing do so because they cash in their investments when prices have fallen.

Don’t:

  • Don’t make long-term financial decisions when you are feeling under pressure, as you might not make the best choices.
  • Don’t invest until you have paid off debts such as any store cards, credit cards or bank loans.
  • Don’t invest in anything that you don’t understand.
  • Don’t think investing has to be all or nothing: you can always invest a small amount and see how you feel about it after six months or so.

Read more in our guide, Making an investment plan.

Buying a new property

Work out what you can afford if you need to buy a new home.

You can check this on our Mortgage affordability calculator.

If you have enough for only a small deposit (say, five or ten per cent), you might be able to borrow through the Help to Buy scheme.

Don’t forget that you will have a number of fixed costs to pay, such as:

  • Stamp Duty
  • survey fees, and
  • legal costs.

Investing in a pension

Don’t forget your pension. You might feel that there are other – more immediate – financial priorities.

But don’t put off for too long paying into your pension or starting a new one.

You might have a lump sum from your ex-partner’s pension that you need to invest.

If that’s the case, you might need advice about what to do with it.

Start by gathering information on the pensions you already have.

Work out what your State Pension is likely to be, and how much you think you might need to live on overall when you retire.

If you’re employed, your employer will already have a pension scheme you can join or will offer one.

This is likely to be a better option than setting up your own pension, as your employer will pay into it as well.

Read more in our guide on Automatic enrolment.

Securing your children’s future

You might want to invest some of your lump sum to pay for the costs of your children’s education or the costs of bringing them up.

Think about using a tax-free account, such as a Junior ISA (or a Child Trust Fund if your child was able to have one).

There are limits on how much you can pay into them every year.

You can choose a cash or stocks and shares investment ISA, or you can split the money between them.

Read more in our guide on Junior ISAs.

Your next step

Find out how to build up retirement savings after divorce or dissolution.

This article is provided by the Money Advice Service.

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Some important information about Rest Less Money

We want you to understand the positives, but also the limitations of using our site. We operate in a journalistic manner and therefore all information, guidance or suggestions provided are intended to be general in nature, and you should not rely on any of the information on the site in connection with the making of any financial decision.

When we set out to build Rest Less Money, we wanted to be a trusted place where you could find helpful information about financial matters affecting the over 50s. As a free to use resource, we try hard to provide the best information we can, but we cannot guarantee that we won’t occasionally make mistakes. So please note that you use the information on our site at your own risk, and we can’t accept liability if things go wrong.

Key things to remember when using Rest Less Money:

We do not offer financial advice – As a journalistic site, it’s important to know that we do not provide financial advice. You should always do your own research before choosing any financial product so that you can be certain it is right for you and your specific circumstances. If you are in any doubt, please seek professional financial advice from a regulated financial advisor.

No Liability – please note that you use the information on Rest Less Money at your own risk and we can’t accept liability for how you choose to use the information given on our site. We will often provide links to content or products and services available on other third-party websites. These are provided purely for your convenience and we cannot be held responsible for any content, or any of the products and services offered on any website that we link to.

 

Accuracy of Information – We try to make sure that all the information provided on Rest Less Money is correct at the time of publishing as we want it to be the most helpful resource possible. Sadly, we are not perfect however, and so we can make no guarantees as to the completeness, accuracy, adequacy or suitability of the information available on the site.
Whilst we work hard to try and provide accurate information, deals and prices can change, so whilst they may be correct at the time of writing, providers may subsequently decide to alter them later – so always double check first.

A final note on the Rest Less Community Forums – always remember that anyone can post their opinion on the Rest Less Community Forums, so it can be very different from our own opinion and may not be factual or well researched. Always be wary of any content posted on the forums and be sure to do your own research and due diligence on anything suggested. 

We hope you find Rest Less Money a useful resource and we would welcome your feedback at [email protected] on how to make it even better. For more information on any of the above you can read our full terms and conditions.

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