Separation and divorce are difficult enough, without having to worry about unravelling your finances, but there are ways to make it easier. Our guides take you through what you need to know step by step…
Moving on financially after you split means being able to plan for the future. The following goals may help you focus, and be more pragmatic about your finances while you cope with the aftermath of your relationship ending.
- Aim to avoid debt; however small an amount it may seem.
- Save money; a little over many years can add up.
- Plan a pension or longer-term savings plan to supplement your Basic State Pension.
- Look after your children; making a will or looking at life insurance can help with peace of mind.
Step one: A clean break versus spousal maintenance
How you manage your finances after your split will depend on whether you or your ex-partner have agreed to a lump sum ‘clean break’ financial arrangement, or whether one of you is continuing to support the other, for example by agreeing to pay spousal maintenance.
- A clean break means that there are no financial ties between you and your ex.
- Spousal maintenance means one of you has agreed to pay the other a regular amount. Spousal maintenance is not the same as child maintenance. Spousal maintenance is what it says, an amount paid to an ex-partner regardless of whether you have children together or not.
Clean break explained:
A clean break means that one partner has enough money to pay the other’s maintenance claim, either via a one-off payment or in several large instalments.
Your options: if you are on the receiving end of a lump sum, you will need to consider investing it so that you draw an income from it. This can be done via shares or share-based investments, or even property.
Consider getting independent financial advice first. You can read more about your options here.
However, you will need to keep at least six months’ worth of expenses in either a current or accessible savings account to pay for unexpected expenses.
Spousal maintenance explained:
- A regular payment made by a former husband, wife or civil partner to their ex.
- It’s paid where one partner can’t support themselves financially without it.
- The amount paid will depend on how financially solvent the partner is, how much they need to survive and whether they are able to earn more in the future.
- Spousal maintenance will normally not need to be paid if the partner receiving it remarries or enters into a civil partnership.
- You can also insure spousal maintenance using a life insurance policy. You can find out more about life insurance and how to buy it here.
Step two: Secure your and your child’s financial future
Your family home
If you own a property and are still paying a mortgage on it, consider taking out a life insurance policy that covers your mortgage if you die before it is paid off.
Other financial safety nets you might want to consider:
- A family income policy (a cheaper form of life insurance) which pays out a monthly income to your children if you die. See details of how to buy one [https://www.moneyadviceservice.org.uk/en/categories/life-and-protection-insurance]
- A critical illness policy which pays out a lump sum if you or your children are seriously ill.
- Making sure you have six months worth of bills and expenses in case of any large unexpected expenses.
Don’t forget your pension…
If you don’t have a pension consider paying into one. You can set one up yourself if you are self-employed. If you’re employed, your company will have a pension scheme you can join, and they will also pay into it. Employer pensions are explained here.
Making a will
You may also need to make a will. Find out more about making a will here.
Saving for your children
If you receive a lump sum, you may want to consider putting some of that aside for your children. A tax-free children’s savings account Junior ISA or a Child Trust Fund if your child is able to have one, means you can save for them, but they cannot touch the money until they are 18. Find out how much you can save here. Read more about the different types of savings accounts here.
Step three: When you move in with another partner
If you decide to move in with a partner, a ‘living together agreement’ could save you having to pay a solicitor if you split. Although not legally binding, such an agreement will help deal with the practical aftermath should you part.
Step four: Saving for the future
Once you have paid off any debts and made sure you can afford basic expenses, you might want to consider saving a small amount each month.
If you save with a UK bank or building society authorised by the Prudential Regulation Authority, you are protected by the Financial Services Compensation Scheme (FSCS). The list of the companies authorised are listed on the PRA website here.
The limit is £85,000 (or £170,000 for joint accounts) per authorised firm. Remember that some banking brands are part of the same authorised firm.
Need more help?
If you are still confused about your options, you might want to use this divorce and money calculator from the Money Advice Service.