Whether it’s Divorce Day or No-Fault April: Separating couples must work to preserve their wealth in 202206 January 2022
The harsh reality of the festive season for many struggling couples means that so-called ‘Divorce Day’ usually falls on the first working Monday of the New Year. This is when solicitors have traditionally seen the biggest spike in enquiries regarding separation, and even filings for divorce, after couples failed to reconcile differences – or experienced heightened tensions – over the festive season.
Last year these trends, anecdotally at least, were exacerbated by the pressures of a resurgence in the pandemic and new restrictions after a year of successive lockdowns. The latest Family Court data is inconclusive: divorce petitions filed in July to September 2021 were down 15% on 2020, but 16% more decree absolutes were granted.
No-fault divorces on the horizon
This year, while Monday 10 January will doubtless be a busy day for family lawyers, many expect those on the verge of separation to put off legal proceedings until April. The No-Fault Divorce Bill, which comes into action on 6 April, removes the need for one partner to assign blame to the other, and should enable less fractious divorces. In which case, crucial decisions on things like finances and allocation of assets might be made with more clarity and balance.
Ben Glassman, Financial Planner Partner and Head of Family & Divorce at leading wealth management firm Tilney Smith & Williamson, says the legislation has been ‘a long time coming’.
‘I wouldn't be surprised if those individuals who have split on good terms are holding off filing their divorce petition until this legislation comes into force. From April, separating couples will no longer have to demonstrate the irretrievable breakdown of the relationship, and this will be more palatable for those wanting an amicable split, particularly where children are involved,’ Glassman says.
‘We know of lots of examples where a divorcing couple have outlined that they are on good terms with each other but once they start getting into the splitting of financial assets things can quickly turn sour,’ he adds.
Get financial advice early as well as legal advice
‘The divorce process can be confrontational but also nuanced,’ explained Glassman. ‘There are many opportunities for conflict, mistrust and misunderstanding and so it is important to have the right team supporting each party. Getting good independent legal advice is always important even if the parties are “on good terms”.
‘However, we would argue that also having a financial planner involved early in the process is as important. Independent financial assessments can benefit both the divorcing parties and achieve clarity around the real value of the couple's matrimonial estate.’
Tilney points out that while people often turn to a financial planner once their divorce settlement is agreed. involving a financial planner early on means that they can help shape the divorce settlement to achieve an optimal outcome for the long-term. In particular, the gut reaction is often to hang on to the family home, but this may not always make financial sense, especially when there are other sizeable assets to consider such as pensions.
The importance of pensions
Glassman continued: 'Where couples are truly amicable and wish to ensure their wealth is split in the fairest and most tax-advantageous manner, involving a financial planner can save hundreds of thousands of pounds.
'This is particularly true where there are significant pension assets involved. Building large pension holdings can result in lifetime allowance tax (LTA) charges.
‘As the LTA has been steadily reduced since 2010, savers whose pension pots were already close to or above the threshold were able to take up transitional protection (enhanced, primary, fixed or individual) to ensure they were not disadvantaged.
‘The ongoing change in rules and grandfathering of legislation has made LTA issues anything but simple and additional caution is needed for those getting divorced. Transitional protection affects both the debited and credited member and in certain circumstances can lead to the loss of tax protection altogether.
‘Understanding the interactions of these protections at divorce and the strategies that can mitigate potential tax charges can result in significant savings for both parties, even into seven figures.
State pensions are also important, adds Glassman: ‘Women especially often have gaps in their career, which could affect their state pension entitlement. It’s important to obtain a projection, particularly when looking to equalise the pension entitlement of the two spouses. The value of a guaranteed income of nearly £9.5k from age 66 (currently) until death is not to be underestimated.’
About Tilney Smith & Williamson
Tilney Smith & Williamson is the UK’s leading integrated wealth management and professional services group, created by the merger of Tilney and Smith & Williamson on 1 September 2020. With £56.0 billion of assets under management (as at 30 September 2021), it ranks as the third largest UK wealth manager measured by revenues and the sixth largest professional services firm ranked by fee income (source: Accountancy Age 50+50 rankings, 2021). The Group currently operates through three principal brands: Tilney, Smith & Williamson and online investment service Bestinvest. It has a network of offices across 28 towns and cities in the UK, as well as the Republic of Ireland and the Channel Islands. Through its operating companies, the Group offers an extensive range of financial and professional services to individuals, family trusts, professional intermediaries, charities and businesses. It is uniquely well-placed to support clients with both their personal financial affairs and their business interests. Tilney Smith & Williamson’s personal wealth management services include financial planning, investment management and advice, online execution-only investing and personal tax advice. For businesses, its wide range of services includes assurance and accounting, business tax advice, employee benefits, forensic advice, fund administration, recovery and restructuring and transaction services.