Why divorce can be costly if you don’t seek a financial order
Financial arrangements surrounding divorcing couples can get complicated and that is when the advice of a good solicitor who specialises in this area of the law is essential – only with a financial order can an ex spouse be prevented from claiming against you years later.
The importance of a financial order
In one well known case an ex wife made a claim against her husband 20 years after their divorce when his finances were on the up and he had made millions in an energy business.
In this case no arrangements had been made, but once a financial order from court has been obtained the arrangements detailed in it are legally binding.
As the law is about to change in favour of quicker no-fault divorces our solicitors are reminding clients to remember the importance of financial orders and the effective sharing of pension wealth.
There is never an easy time to talk about money and even though we always recommend clients look closely at their finances, pensions, maintenance, potential inheritance and property, almost 65% of separating couples nationally think the Decree Absolute ends any financial links and obligations between them.
“Nothing could be further from the truth,” says family law solicitor, Lucinda McWatt, who specialises in finances and divorce.
“I always advise my clients to take a good long look at their individual finances, check on pensions and then consider a financial order, even if one party dies the surviving spouse can still make a claim on the estate if a court order has not been obtained,”
“It is one of the first things I would consider if I was them and the court has the power to approve a financial order once a Decree Nisi has come through, however I must stress it is not enforceable until the Decree Absolute,” she added.
“With the quicker online process I am advising clients to take a step back and remember to consider finances and in particular pension wealth as part of the divorce equation.”
How to protect your pension in a divorce
Sometimes divorcing spouses under-estimate the value of a pension pot wealth; priorities are elsewhere for example new homes and reassuring children and so the pension can take a back burner, especially for younger divorcing couples.
“In a defined benefit pension scheme the pension may often be worth more than the family home, but bricks and mortar or salary differences are what people think of first,” added Lucinda McWatt.
Divorce and Financial Settlements
- Pensions - If your spouse has an occupational pension you may have a dependent's pension but when divorced your rights to the pension will usually be lost. Similarly, without provision in place it would die with them should they pass away. A Pension Sharing Order can provide you with your own pension fund in your name.
- Property – If finances can be dealt with during the divorce then capital gains tax can be minimised, or similarly if a couple can agree with the transfer of any assets in the tax year immediately following separation.
- Maintenance – This is taken into account during the divorce process, i.e. if you are paying maintenance voluntarily are you setting a precedent? Or, If you are managing without it could your ex spouse go on to claim you therefore do not need maintenance provision? Your solicitor can advise accordingly.
“A financial clean break is something I advise on and tackling financial issues contemporaneously rather than putting them off will save money and stress in the long run,” said Lucinda.
“In addition a client can move on, they can also protect any future assets and even those in modest circumstances can benefit, we never know what is around the corner, maybe that lottery win or inheritance, or even business success, if no clean break financial order is in place further claims could still be brought years later.”
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Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.
This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.