Earlier this year, the Divorce, Dissolution and Separation Act 2020 reformed the process for divorce, introducing changes designed to reduce the potential for conflict between divorcing couples.
While the move has been generally welcomed, many financial experts retain concerns about how few couples typically consider the value of pension assets when they divorce.
According to FTAdviser, fewer than 2 in 10 divorces have Pension Sharing Orders that outline how pensions should be divided between divorcing spouses.
Andrew Tully from Canada Life says: “Adding pensions into the mix can be daunting, but not dealing with pensions can be a huge mistake.”
Read on to find out why your divorcing clients should seek financial advice when they split, and how our Resolution-accredited expert can help.
Clients shouldn’t overlook pensions on divorce
A Pension Sharing Order is a way of sharing pension funds with a former spouse or civil partner following a divorce. Under current legislation it is the only way a pension can be given to another person during the member’s lifetime – at least without incurring significant tax charges.
Despite this, relatively few separating couples split pension assets in this way.
Andrew Tully from Canada Life continues: “People often avoid or overlook pensions because they can seem complicated. Where there is a solicitor involved, they should know to get the pension valued.
“But where there isn’t, many people, especially women, opt to try to keep the family home without understanding the real value of the share of the pension they have given up.”
Pensions can often be the most valuable financial asset in a divorce – even more than the family home – and so it’s vital that clients seek advice when it comes to splitting these funds.
In addition, when you’re dealing with a client considering or proceeding with a divorce, you probably hear questions such as:
- Could I afford to buy a house to live independently after my divorce?
- Could I afford to live on a lower income?
- Can I afford the legal fees?
- Will my share of the finances last me in retirement?
Speaking to a financial planner can benefit many people who are separating, and we have the relevant expertise to support your divorcing clients.
Our Chartered financial planner, Mark, is fully accredited by Resolution, making him one of just a handful of planners in the UK with this specialist award in advising divorcing clients. Read on to find out more.
A high level of skill and experience in advising divorcing clients
Founded in 1982, Resolution is a community of family justice professionals who aim to resolve relationship issues in a constructive way.
Resolution’s specialist accreditation scheme recognises financial advisers and planners who demonstrate a high level of skills, proficiency, and experience in their work.
There is only a small number of advisers who have gained this specialist accreditation and it requires an individual to demonstrate:
- A thorough knowledge of family financial matters
- Skill and proficiency as a financial planner
- Experience of working with divorcing clients.
If you have separating or divorcing clients who need specialist advice, this accreditation means we’re in an ideal position to provide this.
It gives you the reassurance that, if you refer clients to us for financial advice, they will deal with a trusted individual with exceptional experience and skill in this area.
We can support your clients and their pensions in a wide variety of ways
Pensions can be difficult to value and tricky to divide. So, if you have clients looking to split these assets, you may find that you need the assistance of a Pension on Divorce Expert (PODE).
We can support you – for example, by providing a Pension Sharing Report or by establishing the value of pension assets.
Your clients may also benefit from our advice when:
- They are seeking guidance concerning the level of income likely to be generated by a pension share
- Pension assets are likely to exceed the Lifetime Allowance (£1,073,100 in the 2022/23 tax year)
- There is a public sector pension scheme involved
- They have older occupational pension schemes, perhaps with high tax-free cash allowances
- One of your clients has a serious medical condition.
We can also help your client to explore the other financial aspects of their divorce, including how to invest any assets they receive, how to create an income, and how to maximise tax-efficiencies.
Financial planning adds value to divorcing clients
A study reported in FTAdviser revealed that just 3% of people seek financial advice when going through the process, despite 38% of over-50s considering their divorce to be financially unfair.
Worryingly, over-50s are four times as likely to seek advice from friends when going through a divorce as they are from a financial adviser.
Working with a Resolution-accredited financial planner can add value to your clients, particularly early in the process. Before they have made any decisions, establishing how their finances might look after the split can be constructive for many clients.
We use sophisticated cashflow modelling tools to consider how a client’s financial situation might look in the future. We can model a range of “what if?” scenarios to establish whether clients will be able to life the lifestyle they want and, if not, what they can do.
We can also identify issues such as any protection gaps, and tax-efficiencies that could be maximised.
Speaking to us early also means that a new pension scheme can be identified before the decree absolute has been granted. This makes the transfer of any pension assets more straightforward.
Working with a financial planner can also help to identify whether any other actions need to be taken – for example, drawing down on the pension to assist with the purchase of a new property.
Get in touch
As one of just a handful of Resolution accredited experts, we’re perfectly placed to support you and your divorcing clients.
If you have clients that would benefit from advice, or you’re interested in how you can work more closely with us, please get in touch. Email hello@sovereign-ifa.co.uk or call 01454 416 653.
