When a relationship ends, it’s vital to stay in control of your finances
Separation or divorce is an emotionally turbulent time, but it can also be an expensive one.
For many couples, the main priorities will be the division of the house/home and shared custody agreements (if there are children involved). However, after so many months/years/decades of shared expenses and financial responsibility it can be quite a culture shock to suddenly take the reins alone to ensure that your future is stable.
Carol Brick, managing director of HerMoney, the specialist financial advisory service for women, says:
“Financial planning for divorced women, or those planning a divorce, is not that different to planning for couples. But we regularly find that women can feel financially vulnerable at this stage, and may not have huge experience in financial matters.”
She has this general advice for women on getting their financial planning in shape after a separation.
Examine your financial situation.
- Take stock of your assets, income and outgoings, and determine future financial needs and goals.
- Prepare a budget, so you know exactly where you stand on the daily living expenses and big ticket items like the car, mortgage or rent, insurances etc. This will be crucial in understanding what you can afford to spend. Changes in income often force changes in spending, and if not managed properly, cash flow problems can cause significant heartache.
- If you’re not earning, try to get in the habit of regular saving for rainy day money.
- If you are self-employed or have received a lump sum divorce settlement, work with an accountant or knowledgeable contact on a new tax projection, based on your income and overheads, and any gains coming from a settlement.
Practical money matters
- Begin to structure your life as a single person, ideally before your divorce is settled. Open a separate bank account, create your own budget, and get your credit cards, bank accounts and insurance policies in your name only.
- Work with your ex to promptly manage joint affairs, particularly loans or overdrafts, as either of you could be asked to repay the full amount if one party defaults.
- It is important to establish credit in your own name, with a credit card or bank account, particularly if you anticipate needing to borrow or get a separate mortgage.
- If buying or renting a new property, work out what you can afford, based on an annual budget and the deposit that will be required. Also check the assets covered on your home policy, in case items of value were sold or belonged to your former partner.
Investing a lump sum
You may get a lump sum as part of a financial settlement, and this is where professional advice is important.
Spouses who sacrificed work opportunities for family, and supported their partner, may not be able to re-join the workforce at a reasonable level, and so the courts can offer spousal support, and provision for children. Or, the family home may be sold and any profit after the mortgage is paid off, shared between you both.
- If there is spare cash, firstly pay off any expensive debts like a credit card or loan. Then make sure you have six months’ expenses in savings, before you next think about investing.
- Existing investments may also form part of a financial settlement on divorce, or need to be divided, so you need to negotiate with each other as to how this happens and take advice. There is likely to be tax or charges if you sell or transfer investments, or cash them in. A financial adviser will be able to pinpoint the best option in each case.
Your own pension
After a shared home, the most valuable asset which a separating couple can have is often a pension. The court can treat a pension as an asset of the separating couple and order that it be divided into whatever shares are considered appropriate.
If one spouse has a substantial pension and the other, who worked in the home maybe, has no pension, the court can order part of the spouse’s pension be paid to the other, or to a dependent child.
The pension fund can be split and placed in another fund in the name of the other spouse, or sometimes the spouse can get membership of an ex-partner’s pension scheme. Specialist advice should be sought in relation to the value of a pension and how it can be shared.
Whether or not you have an existing pension, it is important to start, or to build up, retirement savings.
Life and disability cover
Finding yourself without a partner, possibly having been part of a couple for some time, can make you feel financially vulnerable – what will happen if you can’t work or suffer a financial setback?
Policies need not be expensive, and can be the difference between living comfortably or adding financial stress to an already difficult situation. Different policies cover different percentages of your income, and kick in after a certain period of being unable to work.
Life assurance can also be reviewed, particularly if you have dependent children, as different policies can offer living benefits and/or death benefits to protect your family.
For single women without children, life assurance can be set up to regularly adapt to your circumstances as they change, including protecting against the costs of illness, injury, prolonged absences from work, and hospital stays.
The thought of sorting out finances rarely appeals to anyone; and the task can be doubly difficult on top of the stress of separation. However, the relief and security of knowing you are financially organised is worth it as it gives the soundest possible basis on which to move forward with life.
Carol Brick is Managing Director of HerMoney, a specialist division of CWM Wealth Management. A qualified financial adviser, specialising in asset and wealth management, Carol began her career in the financial services industry over 16 years ago at Bank of Ireland Headquarters.
See hermoney.ie or cwmwealthmanagement.ie for more information.
HerMoney.ie and CWM Wealth Management Ltd. are regulated by the Central Bank of Ireland.