Christmas can be a highly charged time of the year that leads to more people calling time on their relationships.
While the reasons for divorce are always complex, the additional strain of living through Covid and changing legislation means that there could be a significant rise in the numbers of people getting divorced after Christmas
But what are the financial implications of a divorce at or after Christmas, and how can an independent financial adviser help you get the best possible financial outcome?
Why do divorce rates spike in January?
In the legal profession, January has the unofficial title of ‘divorce month’ as it comes straight after the high-pressure holiday season. Even if it’s clear the marriage is beyond repair before Christmas, many couples simply feel they don’t have time to begin divorce proceedings before the New Year.
Russell Marnell, principal lawyer at the Marnell Law Group states, “stress levels during the holidays are exacerbated by the stress of the marriage and they don’t want to deal with both of these situations”.
The situation has made far worse by the pandemic, too. The total number of divorces registered in 2019 in England and Wales was around 108,421, but many legal firms registered increases of around 122% in 2020.
The festive season, financial pressures and, over the last two years, the difficulties faced by couples during the pandemic are all partly responsible for creating a perfect storm in divorce rates after Christmas.
What are the financial implications of divorce?
Every divorce will play out in a different way, but there are a number of key financial considerations to quickly take into account for couples with combines finances.
While there are ways to keep costs low during a divorce, going through the process of getting a divorce itself can prove costly – sometimes adding up to as much as £30,000.
Some key points to consider as a matter of priority are:
How will you separate your finances?
Will you need to buy a new home?
How will you separate your pensions?
Have you made join investments?
Divorces can take many months to settle, as the financial implications of separating couples’ finances can be a tricky issue. This means that being prepared for the costs of a divorce could potentially make this process smoother.
This is only more important today due to Covid complexities. In what is a changeable environment, it’s vitally important couples take onboard the right financial advice to ensure they aren’t caught in a difficult financial position.
How does getting a divorce impact pensions?
In the case of pension sharing, or pension splitting, there is a clear divide: in almost all age demographics, men tend to keep the overwhelming majority of pensions as they have accrued a larger pot during their career.
While this divide is more prominent in the 65-69 age group, where men have more than six times the pension wealth of women, even in younger demographics, men tend to retain the majority of joint pensions.
But as more women from younger generations are moving into well-paid positions, this difference does narrow in younger age groups.
Pensions are considered a shared asset, meaning that a judge could decide to split your pension, or potentially offset a share of your pension against other assets, such as a house.
In any case, it is entirely possible that you will find yourself with a smaller share of your pension than you would have liked, making it important that you begin planning for changes to your pension as soon as possible.
How does getting a divorce impact mortgages?
One of the most immediate concerns for divorcing couples is housing. If a couple has bought a property together and are in the process of paying off a mortgage, there is the additional stress of continuing to make mortgage payments so as not to affect your credit score, even if one party chooses to move out.
Whether both parties come to a financial settlement, or are forced by a court to reach a settlement, there are some financial considerations to be made aware of.
It’s important to speak to your lender as quickly as you can. Many lenders can be sympathetic to couples undergoing a divorce and this can quickly relieve a lot of financial stress.
Outright selling a house is not always the preferred option, especially when there are children involved, so one of the most common solutions to sharing or splitting a house is a ‘mesher’ order. This order means that, while both parties will continue to own the house, one party will live in the property and will not be able to sell it until a certain date.
With the end of year period often being very expensive – and with this year’s expenses being further exacerbated by high levels of inflation – rushing into a quick decision in January is often not the right choice.
Regardless of the situation you find yourselves in, it remains important to seek speedy financial advice so you can adjust your finances to the new situation as quickly as possible.
How does getting a divorce impact investments?
As with other shared financial assets, investments can be shared or offset against other parts of the financial agreement. If you decide to sell stocks and shares, or any other investments, that generate a profit over the annual Capital Gains Tax (CGT) allowance of £12,300, you may need to pay additional taxes.
This being said, you won’t need to pay CGT on your main house or stocks and shares ISA. The specifics of a financial settlement can vary significantly, so it’s important to understand the nuances of how selling investments may impact you financially.
Another risk to selling your investments as part of your settlement, you might be forced to sell your investments before their maturity or at a bad time on the stock market. As a result, you may end up making a loss on your investments, which may drastically change the outlook of your financial situation.
Divorce can be incredibly stressful at any time of year, so getting the right legal and financial advice is absolutely essential. An independent financial adviser can help you get exactly the right information you need as you go through this difficult period, so find an expert who understands your needs at Unbiased.
If you found this article helpful, you might also find our article on the new no fault divorce law changes informative, too.