Divorce is always turbulent, and often fraught with unexpected complications, but an economic recession may make a bad situation worse. If you are about to divorce or are considering it, choices made now will have a significant impact upon your financial future.
Here are 10 tips to help you cope.
If your divorce drags on, costs will mount. Prepare details of respective finances with supporting documentation as soon as possible.
Get your timing right
If at all possible, don’t separate just before the end of a tax year, as you will have little time in which to consider the most tax-efficient arrangements. For example, you may incur a bill for capital gains tax at a time when your finances are particularly vulnerable. In the eyes of HM Revenue & Customs, transfers of assets such as property and company shares result in no immediate capital gains tax liability, as long as they take place in the tax year during which you separate.
Make interim arrangements for bills
Even if your divorce proceeds swiftly, it will be months before a final settlement. Don’t ignore debts and decisions about who will pay them. If you cannot agree, you can apply to the court for an interim order, but this may not be cost effective. Alternatively, see if the bank will help until the house is sold.
Save, don’t splurge
Don’t begin spending money wildly as a form of “payback”, or because you want to keep it for yourself. The court has power to add back wasted monies, so you may be left worse off in the long run.
Consider using a collaborative lawyer
Collaborative law is becoming popular, in part because legal fees are often relatively low. Spouses and lawyers sit around a “negotiating table” and discuss issues. They aim to agree on a fair outcome for both parties and thrash out a deal, while keeping the couple out of court. With lawyers charging by the hour, fees can mount if negotiating is prolonged.
Look out for deliberately low offers and valuations
This happens when the wealthier spouse attempts to push the other party into a corner. For example, a husband may try to obtain a “clean break” rather than a relatively expensive agreement to pay ongoing maintenance, even when a “clean break” would be a highly unlikely outcome in court. He knows his offer is inadequate, based on low valuations, but has little to lose. He can pressure his wife into caving in because she is concerned about legal costs, or he can force her to attempt lengthy and costly litigation.
Keep valuing assets
Keep valuing assets until the case is sorted, especially if it’s taking time. Know the full value of what you are settling for, particularly pensions.
Cash is king
Cash is king in a recession, but remember, other assets can go up and down in value.
Avoid Mesher orders
A Mesher order postpones the sale of the marital home until a specified event takes place.
It originated in 1980, when the Court of Appeal permitted a wife to remain in the marital home with one child until the child’s 17th birthday, or until further order of the court. Such orders were popular during the last recession, when there was often insufficient capital to rehouse a newly divorced mother and her children. The difficulties surfaced when the houses came to be sold. In many cases, the mother discovered that despite inflation, there was still insufficient equity in her share to enable her to buy another property. In some cases, the woman was left worse off, because her reduced time left in the workplace meant she was unable to raise a mortgage.
With the current recession, Mesher orders are coming back into fashion. Avoid them, if possible. It is preferable to downsize and own 100pc of a new home, than own 66pc of a more expensive property that someday may have to be sold.
Know what to do if your spouse goes bankrupt
Don’t be blind to this possibility. If you suspect your spouse is going to declare bankruptcy, make sure your solicitor gets you into court and obtains a court order as soon as possible. If the worst happens, you may still be entitled to stay in the family home for a year and you can still claim your share of that property’s equity.
Some spouses go bankrupt deliberately, to avoid debts and payment of any financial settlements. In one case reported earlier this year, a husband declared bankruptcy despite earning £100,000 a year and driving a Rolls-Royce Phantom. His bankruptcy was later annulled, and he was ordered to pay his wife £1m.
Remember, divorce has an emotional cost as well as a financial one. I encourage clients to concentrate on the positive and look to the future. You can’t put a price on peace of mind.
Divorce & Family Law Specialist can help you at all stages of the legal divorce process.
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