A FINANCIAL SPLIT DECISION

Breaking up is hard to do, and so is splitting your assets

They say the three most stressful events in your life are death of a close relative, moving house and divorce. The third of these, divorce, unfortunately not only causes massive emotional stress, but in many cases also involves significant financial upheaval as well.

At a time when emotions and feelings are running high, it is often very difficult to keep a level head when it comes to sorting out the financial implications of divorce or separation. However, negotiations to divide the marital assets will be high on both ex spouses’ agendas.

The financial implications of divorce can be wide ranging, affecting areas such as property, mortgages, investments, debts, pensions and financial responsibility for any children.

A useful starting point would be to draw up a simple balance sheet to clearly show the value of current assets and debts and whether the assets or debts are owned or owed by an individual spouse, or whether these are held under joint names. Once a picture appears of the relative balance of assets and debts between spouses, consideration can be given to potential transfers from spouse to spouse to provide a 50/50 split. This would provide a starting point on which to begin negotiations.

Probably the two biggest assets, the house and pension plans, are also probably the most difficult to sort out. The problem with the house is that it is not a very liquid asset and therefore often difficult to split fairly without having to sell up. There are often also issues to complicate matters, so advice from a financial adviser would be as useful as legal advice from a solicitor.

The issue of pensions and divorce is a minefield in itself. New rules introduced from December 1, 2000 now provide greater flexibility than before in sharing pension benefits, allowing couples to achieve a clean break. The system now works around the courts placing a Cash Equivalent Transfer Value (CETV) on the pensions held by one or both spouses. A pensions sharing order can then be agreed upon to allow the value of the pensions to be more easily included in the overall agreement to share the assets of the couple. Any percentage of the CETV agreed to be shared can then be transferred into a separate fund in the name of the receiving spouse.

However, these rules do not apply to the basic State Retirement Pension. In many cases a divorced spouse may find that they can use the National Insurance record of their ex spouse to boost their state pension. Completing a State Retirement Pension Forecast, form BR19, is the best way to see if this will benefit any individual. Once again the help and advice of a financial adviser is going to be as essential as legal advice.

Responsibility towards children is probably the most emotionally charged issue of all. If no separate agreement is reached, then the Child Support Agency will get involved in setting the level of any maintenance payments. However, financial issues are of course not the only consideration. Agreements as to who the children will live with, access for an absent parent and even the sticky issue of holidays can make this area the most difficult of all, especially when the children’s own feelings and opinions need to be taken into consideration.

Finally, when all is done and dusted don’t forget to have your Will reviewed, and if necessary rewritten to take account of your new personal and financial circumstances. For a free pack covering the financial issues discussed around divorce ring 0800 544 644.

Will power

Q My wife and I have been discussing what would happen to our home and investments if either of us died. Although we have two children we are happy for everything to pass to which ever of us survives. Am I right in saying we don’t need a will? ST

A If the value of your assets is more than £125,000 you most certainly need a will. Dying without a will means that the laws of intestacy will apply and you will find that these are unlikely to follow your wishes and give the surviving spouse the financial security they need. It is important to sort your affairs out now before it’s too late.

For a free guide to the importance of having a will ring 0800 544 644.

Best to invest

Q I have about £3,000 to invest but I don’t want to tie it up for long. Would a deposit account be the best place to put it? RG

A You could put it into a deposit account, or you could consider a cash ISA which may well offer a slightly better rate. Either way, you need to shop around for the best deals.

For a free guide on the current best rate deposit accounts and cash ISAs ring 0800 544 644.

Ethical banking

Q Can I invest money into an ISA and avoid things like the arms trade, factory farming and pollution of the environment? SZ

A Yes you can by choosing to invest your money in an ethical or socially responsible fund. These should screen out the types of areas of investment you mention as well as others.

Pension transfer

Q I have two personal pension plans with insurance companies that no longer offer pensions. How safe is my money or should I move it somewhere else? CD

A Your money is probably still safe where it is, but the investment performance of closed pension funds may not be as competitive as you could find elsewhere. Take independent financial advice before deciding if you should transfer your money or not.