Divorce represents a challenging life transition that can bring emotional, logistical, and financial complexities. Amidst this emotional turbulence, it’s easy to ignore the crucial role of financial planning during divorce proceedings. However, early consideration and action can have a significant impact on your post-divorce financial stability and financial wellbeing. In this article, we delve into the financial planning process during divorce, and why it should be a priority for individuals navigating this significant life change.
The Financial Impact of Divorce
Divorce represents a seismic shift in an individual’s financial landscape. Shared assets are divided, incomes may change, and expenses can significantly increase due to legal fees and separate living arrangements. It’s critical to gain a clear understanding of your financial landscape during, as well as after, the divorce process. An important starting point is to have a very clear understanding of your assets, income and spending. All assets – including property, investments and business assets – are taken into account at this stage. This understanding forms the foundation for effective financial planning and management.
The Financial Planner’s Role
The first step to securing your financial future after a divorce is to engage a Financial Planning professional with expertise in divorce matters as early as possible. They can provide objective views, help you understand complex financial issues, and guide you in making informed decisions. A Financial Planner will assist in evaluating settlement options and planning for long-term financial goals such as retirement and education expenses for children.
At London & Capital, we have created a few actions for consideration to ensure a prosperous financial landscape post-divorce.
1. Impulsive Decision-Making
Some of the most important decisions to be made during a divorce process are the decisions that are made early on. For example, living arrangements or the decision of investing assets that have been split. It is critical that time is taken to consider various outcomes and which option is in line with your financial goals. Amidst the various scenarios to consider, you may be tempted to make rapid decisions. However, by building a team of experienced financial planning and legal professionals around you early on in the process, you give yourself the best possible opportunity to achieve a suitable post-divorce outcome.
2. Long-Term Thinking
Financial planning is essential for the newly divorced. The previously joint financial plan will be replaced with a plan that is tailored to your individual needs. Creating a cash flow model will be useful. This will involve taking a holistic view of your finances, looking at your income and expenditure plus your assets and debt. Projections can then be made on your future finances. If you have commitments to meet such as the funding of a child’s education or a mortgage, financial planning will be essential to ensure these are taken care of.
3. Financial Literacy
The financial world can be full of jargon, however, it is important that you get to grips with the basics. Investing is an important part of securing your financial future and understanding how it works can stand you in good stead throughout your lifetime. Everyone is familiar with cash, it’s flexible and can be easily accessed through a personal bank account, however, if the rate of return is lower than inflation, the value of your capital will be eroded in real terms. Investment portfolios designed to grow over the long term will typically include a blend of other asset classes and can be tailored to your personal risk profile. We suggest working with professionals who will take the time to explain the terminology, so you feel empowered to ask questions and make the right decisions for your financial future.
4. Taking Advice
Engaging a wealth manager early on is a good way to make sure your wealth is in safe hands. A good wealth manager can provide sound advice on decisions relating to property and investments and can connect you to experts in areas such as taxation and estate planning. Sitting down with your adviser and exploring what is most important to you and what you want to achieve over the coming years will ensure your plan is tailored to your new circumstances.
It is important to consider the pivotal role that financial planning plays during divorce proceedings, particularly around the shaping of an individual’s post-divorce financial landscape. By building a team of experienced financial planning and legal professionals around you, addressing the key financial considerations covered in this article can be made more manageable. In addition, by maintaining emotional wellbeing you can navigate divorce with greater confidence, peace of mind and financial security.
At London & Capital, we aim to help you preserve and grow your wealth by providing thorough guidance to make the right financial decisions, whatever your life circumstances.
