Member Article

Impact of financial advice on divorce

The problem highlighted with the Ministry of Justice (MOJ) electronic form E, which may have resulted in unfair financial settlements needing to be reviewed, highlights the importance of having a good understanding of all assets and liabilities and current and future income sources when preparing for divorce, says Kay Ingram of Independent Financial Advisers LEBC Group.

“Divorcing and separating couples can often benefit from independent financial advice alongside legal advice when considering how to split their assets and income on divorce. Most lawyers recognise that where substantial pension assets are available these need to be referred to a specialist for advice on how to share their value between the couple.

“We will work with clients and their legal advisers to ensure that all aspects of the financial settlement are thoroughly researched to help promote fair settlements between couples and to fully take account of the hidden value of certain assets such as pensions and current and future liabilities such as mortgages and tax liabilities,” says Ingram.

“This is an increasingly complex subject following further reductions in the lifetime allowance for pension savings. The tax bill on a shared pension can be very large indeed if the right steps are not taken when agreeing a share between husband and wife and also the order in which the agreed sharing order is then implemented. In a recent case, we saved one couple over £600,000 of extra tax they would have paid without our advice. This is larger than average but savings of £30,000 or more are common where larger pension assets are being shared. Understanding the very complex pensions savings tax regime and how it could impact the husband and wife is beyond the scope of expertise of most lawyers and many turn to us for help with this.”

In the MoJ Form E glitch the problem has arisen due to not taking account of liabilities such as mortgages: this too is now an area in which more couples and their lawyers need financial guidance as, since the Mortgage Market Review, lenders look at affordability of any proposed borrowing rather than multiples of gross income.

Ingram adds: “This means that any order for maintenance may substantially reduce the availability of mortgage finance and this also needs to be taken into account properly before a financial settlement is agreed with the court. What may seem reasonable from an income equalisation point of view could leave the spouse who is paying maintenance unable to purchase a suitable home.

“With many older retired couples now divorcing, we are also using equity release loans as a way of accessing capital to enable two households to be financed while the matrimonial home is occupied by one party. For those who have been caught out by the faulty Form E and now need to revise their settlements, a remortgage or equity release arrangement could be the answer.”

This was posted in Bdaily's Members' News section by LEBC Group Ltd .