Even if you go through something like splitting up with your partner amicably and have worked through some of the practicalities, have you thought about the potential financial impact of your divorce or separation? In this article, we look at some of the key areas you should consider. 

Your disposable income 

According to the ONS, the cost of living rises for those who live alone, with one-income households spending an average of 92% of their disposable income, compared to households with two adults who spend around 83% of theirs. If you are going through a divorce or are considering a divorce, it is worth bearing in mind that the income you are used to having available to spend, may likely reduce. 

Your retirement plans 

Pensions and other retirement assets are included in the matrimonial pot when it comes to divorce or separation from a civil partner. This means that when working out financial settlements, your pension or retirement investments will be included with all other assets. The impact pensions can have on you in relation to your divorce will vary depending on your position. 

You may want to reach an agreement with your ex-spouse or civil partner through an offsetting option. This is where either one of a spouse’s pension is offset against other assets involved in the separation, for example, the family home. Alternatively, you may want to share the pension, a scenario where the pension is divided into two portions, giving each spouse their own pension fund for when they retire. Another choice is to ‘earmark’ a pension where the rights to the fund are accessed when retirement age is reached. 

Your personal credit score 

Just because you are parting ways, this does not mean your financial association with your former partner will cease. While your marital status is not detailed on your personal credit file, the record will show when you have financial associations with others. This could be a joint bank account, car loan or mortgage, for example. 

Many people going through a divorce want to establish completely separate finances afterwards, however, in order to financially disassociate from your ex on your credit file, it is usual for any credit agreements you had with them to be settled. If you have a joint bank account, it’s advisable to remove your name from it as early on as possible. 

The cost of selling your home 

If you own your home with your spouse, there are a number of avenues you could pursue. One option is to sell the property and divide any equity you have accumulated. Bear in mind you will need to remove conveyancing fees and any taxes you could be liable to pay from this.

You or your spouse could opt to stay in the family home. To do this, the remaining party could either buy out the other, or rent their share of the property from them. A Mesher order is another alternative for divorcing couples. This is where both names remain on the mortgage but only one person stays living in it, until a specific time or milestone (sometimes when a child reaches the age of 18) at which point the property is sold. 

Conclusion 

Without thinking about the various aspects and your own personal circumstances carefully during a divorce, finances can have a lasting and often detrimental impact on your future. Ensuring you know the facts about all your finances early on in your divorce is key to gaining the most favourable outcome. Speaking to professional financial advisers and family lawyers will also help put you ‘in the know’ and help you make the best choices.