Published: 30 April 2019
When separating from a long-term partner, taking the time to lay foundations for your new financial future can be a positive step towards moving on.
With Justice Minister David Gauke announcing plans recently to overhaul divorce laws in England and Wales, aiming to make the process less acrimonious and drawn out for all involved1, it’s clearly recognised how stressful breaking up can be.
If you are going through a break up it wouldn’t be surprising if you are tempted to put off thinking about the financial side of things, even if your split is an amicable one.
But it’s likely there will be a few issues to resolve.
Here we take a look at some of the things you may need to think about when getting your personal finances into the best possible shape for the future.
While much of this will be down to your specific circumstances, preferences and objectives, this checklist may help give you a head start in taking control.
If you have joint bank accounts with your ex-partner these can usually be split and closed fairly easily. Accounts can be frozen if there’s a risk of one partner running up new debts or continuing to take out money that’s not necessarily theirs.
Provided all joint bills are cleared, make sure that all accounts you held together are properly closed, as they could affect your credit rating. It’s worth checking that credit record anyway, to ensure it is up-to-date and reflects the changes you’ve made. Contact a credit reporting agency (such as Experian or Equifax) if you notice something that’s not right.
Property is probably the most obvious asset that springs to mind when it comes to agreeing a financial settlement with your ex-partner. But pensions can also be surprisingly valuable. Perhaps even more valuable than property in some cases.
For someone leaving a relationship without decent retirement savings of their own, agreeing a pension settlement of some kind may be one way to begin building an independent nest egg for your own retirement.
Pensions can be split between couples on separation, with the various assets shared based either on a mutual agreement or a court settlement. There’s also the option of a pensions attachment order (‘pensions earmarking’ in Scotland), whereby one partner can receive some of their ex-partner’s pension when it starts being paid out. If you’d like to read more detail, the Money Advice Service website is a good place to start.
This can be a complex area, so if a pension settlement is something you wish to consider you’ll probably need to take professional advice.
Sorting out things like your property and pension can feel like a one-off clean up job, so you may find helpful to look positively to the long-term as well. One way you could do this is by setting up an investment portfolio to help you save towards your new post-separation goals and ambitions.
Whether you set it up with a lump sum (using your proceeds from the sale of a jointly-owned property for example) or drip-feed money into it each month, setting up an ISA portfolio that aims to provide the income and/or growth you need can be a good, tax-efficient place to start building for your financial future.
There’s a limit to how much you can pay into an ISA each tax year. It’s £20,000 for the 2019/2020 tax year.
You’ll find resources on our website to help you decide what’s best for you, but if you’re not comfortable making your own investment decisions you should seek professional advice. Remember, too, that investment returns can go down as well as up and you could get back less than you put in.
Once you have a few post-separation basics in place, a regular review of your finances will be essential to keep it all on track.
One way you can potentially make this easier is by consolidating your finances. When it comes to investments, you can use platforms such as ours to hold your pension, ISA and as many separate investment accounts as you wish. This approach helps brings everything together in one place for convenience and allows you to benefit from potential cost savings. See how our charges compare.
There are also various other money management dashboards, apps and tools available to help you more easily view your various accounts and products and manage them more effectively.
Many couples will have joint life insurance policies and/or protection contracts where the other partner is named as a beneficiary.
For individual policies/contracts you may be able to change the name of the beneficiary without amending anything else. You should also check that the cover you’re paying for remains appropriate (in terms of how much it would pay out) and that any new gaps arising from your separation are filled. For instance, if you were previously relying on your partner’s income to help you in the event of being unable to work, you may now want to consider an income protection policy of some kind.
With joint policies it can be more complicated. One partner may be able to take on the policy and convert it to a single policy (check with the provider to see if this is possible). Another option would be to cancel all joint policies, and each then take out any new single contracts you need.
Also, don’t forget to review any workplace death-in-service benefits or pensions expression of wishes you may have completed in the past. Do these have your ex-partner as the beneficiary? Are you still happy for this to be the case?
If you have a Will, it may reflect your previous relationship status. If you want to make changes, it could be a case of simply removing your former partner as a beneficiary and/or executor, but you may also need to address other issues, such as adding other beneficiaries or adjusting existing legacies depending on your new plans for the future.
Wills are one part of financial planning that many people tend to overlook. But failure to update a Will following a major life change could cause real complications for your family later on.
This is provided for general information only and takes no account of personal circumstances. It is not a recommendation to buy or sell. It is provided solely to support you in making your own investment decisions. If you have any doubts as to their suitability you should seek expert advice. Alliance Trust Savings does not give financial or investment advice.
Laws and tax rules may change in the future without notice.
Please be aware that the value of investments can fall as well as rise so you could get back less than you invest.
1 gov.uk, New divorce law to end the blame game, 9 April 2019
Alliance Trust Savings Limited is registered in Scotland No. SC 98767, registered office, PO Box 164, 8 West Marketgait, Dundee DD1 9YP; is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, firm reference number 116115. Alliance Trust Savings Limited gives no financial or investment advice. ‘Alliance Trust Savings’, ‘ATS’ and 'AT Savings' are all brand names of Alliance Trust Savings Limited together with the ‘Alliance Trust Savings’ logo are owned by and used with the permission of Alliance Trust PLC, the previous owner of Alliance Trust Savings Limited.