Divorce is always an emotionally challenging experience for everybody involved. But women often take on more of the financial burden at the end of a marriage.
Research from Legal & General shows that there is a significant “gender divorce gap” as women experience a 33% drop in their income, compared with just 18% for men.
This could be due to the gender pay gap, where women are likely to earn less. Additionally, Legal & General report that 74% of men are the primary breadwinner in heterosexual relationships. As a result, women may experience a significant change to their lifestyle after a divorce.
Fortunately, by preparing properly and seeking help from a financial adviser, you may be able to protect your wealth. Ultimately, this means that you can maintain your lifestyle and continue working towards long-term goals, such as saving for retirement.
Here are five important financial tips for women who may be at the start of the divorce process.
1. Gather all of the relevant paperwork
Dividing joint assets fairly is one of the main priorities during a divorce. Unfortunately, the split is not always equal.
For example, Which? reports that 7 in 10 couples do not split their pension during a settlement, and this can disrupt your retirement plans.
The good news is gathering all the relevant paperwork now could help you ensure that no assets are missed and the value of everything is calculated correctly.
You will need information relating to:
- Bank accounts
- Credit cards
- Pensions
- Investments
- Mortgages
- Other loans
If you have all this information ready, it may be easier for your solicitor to get a fair settlement and ensure none of the important assets are missed. It can also make the whole process faster and easier for you.
2. Create a comprehensive budget
Transitioning from joint finances to managing things on your own can be challenging, particularly if your spouse took a leading role in managing your wealth.
Consequently, creating a comprehensive budget is very important. It shows you whether you can afford your outgoings, and if you need to adjust your lifestyle.
To create your budget, list all your outgoings, including monthly and annual expenses, as well as any one-off costs that you expect. For example, if you need to replace your car or make repairs to your home soon, make sure to account for this expense.
Next, add up your total income, not including any contributions that your ex-spouse made. This will give you a clear idea of the lifestyle you can afford.
It’s very important that you do this task so that your financial adviser can use the information to create a cashflow plan.
This is where all the details about your budget, as well as the information you gathered about your assets, are put into a piece of software that creates a visual representation of your financial situation. Additionally, your financial adviser can map out how your financial plan may progress in the future.
During the divorce process, these forecasts can serve as evidence of the level of income you need to maintain your lifestyle when negotiating how to divide your assets.
As a result, you may be more likely to get a fair settlement that leaves you able to comfortably pay your living costs and work towards long-term goals like saving for retirement.
3. Assess your credit score
You may well need to borrow money after a divorce, perhaps to buy out your ex-spouse from your home or to buy a new property of your own.
Knowing what state your credit score is in, and whether any joint borrowing with your partner has affected you, can help you prepare for this.
If you are unsure about the current state of your credit, you can use online tools to check your credit score and find out exactly what credit has been taken in your name.
This knowledge, combined with the budget you previously created, will give you an idea of how much you can afford to borrow.
4. Make sure your ex-spouse is not a named beneficiary
Typically, people name their spouse as a beneficiary whenever it is necessary. Unfortunately, you may miss certain details when going through a divorce, so you could forget to update important paperwork.
For example, you may have named your ex-spouse as the beneficiary of a life insurance policy taken out privately or provided through work. They may also be named on the expression of wishes form so they could inherit your pension if you die.
It is important that you change these details as soon as possible and name a different beneficiary.
5. Update your will and Lasting Power of Attorney
When you get married, your existing will immediately becomes invalid. However, it is a common misconception that the same thing happens during a divorce.
Some people also assume that you revert to your previous will from before you married, but this is not true either.
In fact, your current will remains in place, but your ex-spouse is treated as if they had died for inheritance purposes.
In practice, the portion of your estate that was supposed to pass to them will likely be divided according to the rules of intestacy because there are no clear provisions about what should happen to it.
As a result, your estate could be divided in a way that you hadn’t intended if you don’t update your will.
Additionally, you may have named your ex-spouse as your attorney in a Lasting Power of Attorney. If so, you may want to nominate somebody else, so you have a trusted family member to manage your affairs if you become unable to.
Take control of your financial future
Divorce can leave you at a financial disadvantage, but it doesn’t have to if you take control of your financial future.
One of the most effective ways to do this is to work with a financial adviser alongside your solicitor and follow the crucial steps discussed above.
This can put you in a stronger position, so you are able to maintain your financial stability, both now and in future.
Flying Colours was established in 2015 by Guy Myles, CEO and founder of Flying Colours, he is also one of the co-founders of Octopus Investments.
Flying Colours was created to offer consumers a way to access financial advice and investment management without compromising the quality of advice and investment solutions needed to help clients reach their goals.
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