The pandemic has triggered an increase in the divorce rate. Couples have been through a lot last year, and who would you blame for it.
In light of this sudden surge in divorce post-Christmas, a new law has been introduced to make the divorce process easier and quicker.
Nonetheless, it is still essential to sort out finances properly during the divorce.
Here are a few tips to help you fairly split your money, debts, and assets during the divorce.
Prioritise Financial Settlement
Usually, there are two approaches to split finances between separating spouses. The first one is when the couples mutually agree on a settlement. And the second one is a court order.
Generally speaking, the court intervenes in a split order only when the couples do not agree to a settlement.
With the new Quick Divorce , the legal process has already been shortened by up to six months. There is no need for the couples to prove fault under this new law.
That is undoubtedly relieving for many splitting couples. But it has a flip side to it too.
The shorter timeline for divorce grants also means that the couples need to settle their finances as soon as possible.
Failing to do so in time can easily cause the splitting partners to lose many of their financial privileges.
Calculate Needs And Assets
When deciding the split, it is vital to calculate your expenses and financial liabilities after the divorce. Financial liabilities should not be compared with the assets owned.
Consider this; many splitting couples feel retaining a family home over ongoing expenses is worthwhile. But you should realise that the family home is an equity-based commodity. It won’t pay bills.
It is essential to calculate the future income and expenses to agree to a realistic settlement. And it’s not crucial for just one party, but both.
Another point to consider here is the maintenance settlement that one partner would pay to the other. An unfair demand for payment without considering whether the party can afford to pay it or not will only create more unrest.
Besides, both splitting spouses should also try to be as honest in disclosing their assets and income as possible. Indeed, it would be a contempt of court if any separating spouses failed to do so. And can even land the dishonest party in jail.
Include Pensions Too
After the family home, pensions are often the second most valuable asset for couples. And, sometimes can be worth even more than that. Yet, they are frequently overlooked by couples during financial settlement.
When you’re discussing separation, it’s always good to get your pension valued in the marital balance sheet. However, it is noteworthy that only the person who has taken out the allowance or is a member can ask for a split in it.
There are three ways couples can deal with pension splitting in a divorce. The first one is offsetting their value against other assets. It would mean compensating pension in return for access to other assets.
The second way is sharing the pension on a clean break basis. Translation – it would be split mutually in percentage to each partner without considering other assets.
And the last way is if one partner agrees to pay some of the income to the ex-spouse after retirement.
You can go either way, depending upon your mutual understanding and agreement.
Don’t Forget Taxes
Tax consequences are a huge concern for couples who’ll be splitting assets and surviving on separate incomes after the divorce.
Consider this; splitting pension would have tax implications. But, the taxes would depend upon the way pension is divided between the ex-spouses.
Besides, the tax implications are usually imposed on the owner of the assets. It shouldn’t be a problem when the tax is charged after you’ve split your assets and have been granted the divorce.
In contrast, it could be a grave concern if the asset is transferred after the tax has been imposed. If this happens, the party holding the ownership of the assets at the time of announcement will be liable to pay all the taxes.
As unfair as it may seem, the taxpayer would actually not hold the title for any of the assets in question. Yet, would be bearing all the expenses, which could be anywhere between a few hundred pounds to several thousand.
In addition to this, there is inheritance tax, income tax, and capital gains tax. And they all are affected by the divorce decision. So, it’s better to plan for the taxes to minimise these costs.
Consider Insurance Needs
Couples frequently mistake when agreeing to maintenance payments without ensuring they will be paid in the event of death or sickness.
Usually, the maintenance payments are paid from the earnings of one of the ex-spouses to the other. However, if the payer dies or is sick, leaving them unable to earn money, it could leave the other ex-spouse in a cash crunch.
Thankfully, insurance arrangements can be made for such situations.
Experts recommend ensuring insurance coverage or any other asset security to pay instead of future maintenance.
Indeed, courts often require insurance as a part of the financial settlement during a divorce proceeding.
Include Divorce Expenses In Settlement
Divorce proceedings are expensive. There are fees involved for the solicitors. And then, there are court fees and other expenses involved in getting a divorce.
Separating couples often overlook these expenses when going through a divorce and negotiating maintenance payments.
It would be helpful if you considered these expenses in your financial settlement agreement.
Not only would it help you save some money, but it would also allow you to get a fair settlement for your financial needs.
The Bottom Line
A divorce can impact all aspects of your life. And financial settlement takes paramount importance during a legal separation.
An unfair or biased settlement can impact your life for years to come.
Whether you consider involving a mediator or you mutually agree to a settlement with your ex-spouse, take note of your financial needs and liabilities. And not just for the present but also for the future.
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