Why You Should Use a Financial Advisor During Your Divorce

I have yet to meet a single client who doesn’t express some form of concern about the impact of their divorce on their financial stability. While it is essential to focus on the legal process and on limiting the emotional toll for everyone in the family, overlooking the financial aspects can result in long-term consequences. Bringing in a financial advisor early on during your divorce process can help you avoid costly mistakes and secure a more stable financial future. This article will explore why hiring a financial advisor is crucial during divorce, the best time to involve them, and what specific deliverables they provide.

Benefits of Using a Financial Advisor in Divorce

Divorce in the UK involves splitting assets, pensions, properties, and even liabilities like debts. A financial advisor with experience in divorce can help you understand your financial landscape and plan accordingly. Here are some of the key benefits:

1. Objective Financial Assessment: Divorce can cloud judgment, leading to emotional decisions that are not always financially sound. A financial advisor provides an objective perspective, ensuring that you approach financial matters logically rather than emotionally. The hard facts you gather from your conversations with a financial advisor will then find their way back into your coaching sessions as some of the elements to consider in your decision-making.

1. Tax Efficiency: Without proper advice, many people overlook the tax implications of asset transfers. A financial advisor can guide you in structuring the division of assets to minimise tax burdens, ensuring you don’t lose a significant portion of your assets to tax bills. This is particularly important in international divorce, when there are assets in various countries, and you will need a specialised professional to advise on the different tax regimes and implications.

1. Pension Division: In the UK, pensions are often one of the largest assets to be divided in a divorce. Pensions can be complex to assess and divide, especially if one party has a defined benefit pension or is a higher earner. A financial advisor will ensure that pensions are valued correctly and divided fairly, and can advise of various options such as pension sharing, pension offsetting or pension attachment.

1. Planning for the Future: Post-divorce, your financial needs and goals may change significantly. A financial advisor helps you create a tailored financial plan to safeguard your future, including retirement planning, education funding for children, and even advice on how to invest a settlement wisely. For those of you who are less financially savvy or aren’t used to managing the family’s finances, this will be a unique opportunity to learn the basics and ensure you are in control of your financial health going forward.

1. Avoiding Costly Mistakes: Many individuals underestimate their long-term financial needs post-divorce or mismanage settlements. A financial advisor can help ensure that decisions made today will provide financial security for years to come. By modelling your proposed settlement agreement and alternative options, you will build a very clear picture of the financial sustainability of these proposals, which will help you with decision-making and negotiations.

When to Bring a Financial Advisor On Board

The best time to involve a financial advisor is at the beginning of your divorce process, alongside your divorce coach and your solicitor. Early involvement ensures they have a full picture of your financial circumstances and can work with your legal team to achieve a fair and sustainable settlement.

Financial advisors are also extremely also helpful during mediation or negotiation phases, working behind the scenes to evaluate offers and counter-offers, providing clear advice on whether a settlement is in your best financial interest.

 Key Deliverables

A financial advisor provides several important deliverables during a divorce, including:

- Asset Valuation: Accurately valuing assets like properties, investments, pensions, and businesses.

- Settlement Projections: Offering projections on how different settlement options will impact your finances over time, helping you choose the best path.

- Tax Strategy: Developing strategies to handle capital gains tax, income tax, or inheritance tax implications.

- Cash Flow Modelling: Creating long-term cash flow models to show how your post-divorce finances will evolve and whether your settlement will support your lifestyle.

- Pension Valuation Report: This report is crucial for understanding the value of pensions and the options available for dividing them during a divorce.