The financial implications of getting a divorce after Christmas

What are the financial implications of a divorce at or after Christmas, and how can a financial adviser help you get the best possible financial outcome? 

Christmas can be a highly charged time of the year that leads to more people calling time on their relationships.

There are multiple and complex reasons why married couples divorce, but sometimes, it's the strain of the festive season or the opportunity for a fresh start in the New Year that prompts many to go their separate ways.

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, says: “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 festive season, financial pressures and the difficulties couples faced during the pandemic are all partly responsible for creating a perfect storm in divorce rates. 

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 take into account.

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 joint investments?  

Divorces can take many months to settle, particularly for couples who have been married for many years or have children. Agreeing on a financial settlement can be complicated, but being prepared and understanding the costs and challenges ahead may make the process smoother.

A good financial adviser can be invaluable. 

How does getting a divorce impact pensions? 

When lengthy marriages end, the pensions of either party could be worth as much, if not more, than the family home.

And, particularly in families where one partner has taken time out of work to raise a family, there is often an uneven divide of pension wealth, with one person having substantially more saved for retirement than the other.

For this reason, it’s important that pensions are shared in the financial settlement to ensure that both parties leave the marriage with some provision for their retirement.

A judge may order a pension to be split between both parties, or it may be offset against other assets. For example, one partner may keep the family home in lieu of a right to their ex’s pension.

In any case, it is entirely possible you will find yourself with a smaller share of your pension than you would have liked, making it important to 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 is 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 children are 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.  

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 £3,000, 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 is 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.  

Get expert financial advice

Divorce can be incredibly stressful at any time of year, so getting the right legal and financial advice is essential. A financial adviser can help you get the 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 no fault divorce law changes informative, too.