Over a third of married couples who had been considering a divorce are now opting to stay in their relationship because of the cost-of-living crisis, according to a survey.
The first working Monday of the new year has been dubbed ‘Divorce Day’ by lawyers, but many couples are thinking twice before splitting from their partner this year according to Stowe Family Law.
This year’s Divorce Day is the first since the introduction of no fault divorce last April and also comes as families, and couples, face rising food costs, mortgage payments and energy bills.
Stowe surveyed over 500 people aged 25 to 74 around the UK to find out how relationships had fared over the Christmas period.
The survey also revealed that 72 per cent of those couples surveyed were not aware of the introduction of no-fault divorce.
Niamh McCarthy, a partner at Stowe Family Law, said this year, Divorce Day may not see divorces rise as much as previous years.
She added that couples wishing to separate “face the stark reality of whether they can afford to divorce and live independently in the deepening cost of living crisis.”
McCarthy said divorce enquiries were rising and November 2022 had been its highest month on record for enquiries, an increase of 50 per cent on 2021, and 192 per cent compared to pre-pandemic and the cost of living crisis.
She added: “Over the past few months, I have spoken to many people asking about divorce, but who have been putting it off due to financial worries – most notably concerns about not being able to afford to live alone.”
“With so many distressed couples not feeling financially free enough to come out of their relationships, we might not see much of a rise in divorce applications on and around this year’s Divorce Day.
“To those couples aptly surviving the backdrop of financial uncertainty and spiralling costs, how can they continue to survive these tense times when supposably the worst is yet to come.”
Financial fears and marital problems
Stowe’s survey also showed that nearly 60 per cent of people fear the cost-of-living crisis may lead to the breakdown of their relationship.
McCarthy said as one of the main concerns was disagreeing on where to prioritise spending couples could benefit from ramping up open and honest talks, putting financial plans in place, and understanding that compromise might be the key to surpassing these bumpy times.
“Finally, for the couples who have decided to end their relationship, they must consider how to plan as effectively as possible for financial security when it comes to dividing assets upon divorce.”
The main reasons for money causing tension in people’s relationships were, in order: struggling to pay the bills; not enough money coming in; worried about not being able to maintain current lifestyle; different financial priorities to their partner.
How to steer your finances through divorce
Alexandra Price, director of financial planning at Charles Stanley, has the following advice for couples who have made the decision to split.
Understand the assets you have
The first step in the process is to draw up a list of assets that may need to be divided – pensions, property, and investments. The house and pension fund pots will generally form the largest two assets and dividing them can be complicated.
Think about the family home
The family home is usually one of the assets that is most unsettling, particularly if children are involved. You have several options to consider in splitting the family home. You can sell the property and share the sale proceeds. You can arrange for one party to buy out the other party; or you can keep the home under joint ownership with one partner continuing to live in it. Many couples divorcing will have a joint mortgage, but once separated may arrange for only one person to remain on the deeds. If you can’t afford to take over the mortgage it may be possible to get a ‘guarantor mortgage’.
Put children first
Going through a divorce is always difficult, but if children are involved, it can become even more complex. So before you consider how you split your assets, you should ensure your children are well provided for. Once you have agreed on custody arrangements, you need to discuss the financials. How will both parents be contributing to day-to-day costs, any school fees you may have, clothing and clubs – the list could go on.
Split your pension pots
One thing to be wary of is to ensure you value all assets correctly, particularly pensions. Often divorcing couples will focus on short term needs, forgetting to include large benefits within pension schemes, with many often losing out by not demanding a share of an ex-partner’s pension. And pension benefits can be worth as much as the family home! When splitting pension pots, you have several options. You can share your pension, transfer funds into you ex-partners name or offset the value of the pension fund against other assets; or earmark where your ex will retain a share of the pension scheme.
interactive investor’s Great British Retirement Survey 2022 found that 65% per cent of divorcees had not discussing pensions during divorce proceedings. When comparing those retired with those yet to retire, almost two thirds, 82 per cent, of divorcees in retirement didn’t discuss divorce when splitting the assets, compared to 68 per cent among those who had not retired.
Change your will
If you are going through a divorce or separation, then you may need to change your will to accommodate your new circumstances. Make sure you update this as soon as possible to ensure that your wishes are granted.
Consider Capital Gains Tax (CGT)
Under current law, assets can be transferred between spouses and civil partners free from Capital Gains Tax (CGT) up to, and including, the year of permanent separation. After that, the transfer of assets is subject to CGT with the deemed disposal proceeds being the market value of the asset.
The government has proposed new rules, which if passed, will extend the period for exempt transfers to 3 years after the end of the tax year when the spouses or civil partners cease to live together. Although these new proposals are favourable for separating couples, tax consequences of every proposed financial settlement need to be considered and it is best to involve a specialist if your affairs are complex.
Update financial products and policies
When going through a divorce it’s easy to focus on the big financial assets – investments, the family home and pensions – but what about other financial products you have such as insurances, bank accounts, monthly subscriptions? The list could go on. Once you have agreed on the spilt of the big financial areas, then it’s important to consider all other financial products that need to be spilt accordingly. Not doing so could impact your financial future.
Divorce Day: How to split your finances
Emma Watson, head of financial planning at Rathbones Investment Management, urged all couple to understand their day to day budgets when working out how to split their cash.
She said that to keep a similar lifestyle post-settlement, it was important to understand how much you require day to day. Monitoring your daily outgoings, major bills and any expected future expenditures (such as private school fees) will give a goal to aim for when negotiating the settlement.
Your financial settlement can be received in two ways, a lump sum or ongoing maintenance payments.
Watson said investments tend to outperform cash over the long term, so you may consider investing some of your lump sum or ongoing maintenance. With knowledge of your future financial goals your financial planner can help here too.
Consider what could happen to your family should your income fall to zero, or if you became ill or passed away. Putting the right insurance in place would help protect you and your family and mitigate any risk should the unexpected happen.
Have some financial priorities
Once the dust has settled, you should start thinking about your financial priorities. There are a lot of questions you’ll need to ask yourself and a good financial planner will ask them too. For example, you may want to focus on your children’s or parents’ financial futures, such as education or care costs, or you may simply want to focus on your own. If you start thinking about your financial priorities now, your financial planner can start putting together a plan for cashflow and budgeting, and help you feel comfortable and confident about your financial position.