Getting divorced is an expensive process.
It can also take years, or even decades to fully be free of the effects.
During the process, you are likely to be affected emotionally, physically and financially, but over time, the first two effects will lessen. Unfortunately, the financial effects are often the slowest to heal.
According to research from Prudential:
- The annual income for divorcees is £3,800 less than those who have never been divorced
- 23% of retirees will take significant debts into retirement with them, compared to 16% of non-divorcees
The good news is, whatever the circumstances surrounding your divorce, it is possible to get yourself into a financially stable position again.
Richard Collins, Charles Russel Speechlys Family Law Partner, says:
“We are beginning to see many more people divorcing just prior to or during retirement. These decisions can only be made easily if there is proper financial provision in place for both spouses’ retirement.
“The fact that divorcees tend to have lower debts than their married counterparts may be down to the courts encouraging a clean break between divorcing couples where a clean break is affordable.
“This allows divorcing couples to regain control over their own finances and consider how they want to plan for their separate futures. Many divorced couples re-evaluate their spending and finances after divorce and take this opportunity to build a stable financial future for themselves including growing enough pension provision for their retirement.
“I’ve seen people post-divorce relishing their independent financial status and seizing the opportunity to make financial decisions for themselves, knowing that they are building up wealth and securing their future.”
Your first priorities should be:
Having somewhere to live in the short and long term is the most vital thing to consider when separating or divorcing. If you are staying in a shared home, will you be able to afford the payments now you are alone?
You may be entitled to support or state benefits to help you to find affordable housing and stabilise your finances.
- A financial safety net
One of the best ways to improve your financial stability, is to build up a financial buffer or safety net. Ideally, this should be equal to three-to-six months household expenditure. Try to hold your emergency fund in an instant-access account, even if that means compromising on interest rates.
At this point, it is also worth updating your will, as divorce will render your current one invalid.
Top tips for maintaining your financial stability during divorce
1. Handle the process practically
Don’t rush into decisions. It is understandable that your head will be ruled by your heart at a time like this. However, financial decisions can affect you for life, so it is vital that you allow your sense of logic to step in and override any rash commitments you may be tempted to make.
To give logic a fighting chance, it may be worth discussing your ideas and thought processes with a friend or family member you trust.
2. Get your paperwork in order
Take care of your current obligations first, whether that’s cancelling payments, changing your address with your bank or updating your nominated beneficiaries on your life insurance. Most of these can be done over the phone or online and, whilst they are small tasks, they can often feel very important and will give you a sense of accomplishment and control.
3. Re-evaluate your goals
What you want out of life may have changed since you last thought about your finances. During a calm moment, you should think carefully about what you want your life to look like and your ideal financial situation. Make some notes as you rediscover your priorities and keep them in a safe place; you will need them again.
4. Prioritise financial protection and retirement
If you haven’t already invested in insurance, now is the time to take out Life Insurance, Critical Illness Cover and Income Protection. If you are living alone, or have dependants, the peace of mind is worth it.
Once the immediate threat of emergency is covered, it’s time to think more long term. Research has shown annual income is less for divorcees, but how can you avoid letting that affect the quality of your retirement?
You have three options:
- Making up the shortfall with bigger pension contributions
- Accepting that you will have less to live on and adjusting your lifestyle accordingly
- Staying in work for longer to earn more money and continue to build your pension
Of course, you may have had plans to grow old with your ex and gracefully mature together. Now you have the opportunity to rethink that plan and replace it with your own aims and desires. Think about what you want your retirement to look like, then use a retirement income calculator to determine how much you will need to save to achieve it.
5. Make a plan
Now that you know what you want and what you need to get there, you can begin to put a plan in place to make sure that you keep your finances on track. To do this, you will need to find ways to bridge the gap between your current circumstances and your desired lifestyle. Which may seem impossible, but there are many options to consider.
Of course, if you would prefer the hard work to be done for you, you could consult an independent financial adviser…
6. Consult a professional
Independent financial adviser and planners are experts at finding the solutions and strategies to bring you closer to your financial goals.
The main benefit of talking to a professional is the knowledge that they are clued up on the many types of product available and will have access to knowledge that you will not. That means that you can be secure in the knowledge that the products and methods suggested are the most suitable for your circumstances.
To rebuild your financial stability and confidence, get in touch.