Recent research suggests that relationship status significantly impacts the likelihood of someone getting professional financial advice.
According to Intelliflo, 44% of people getting advice are married or in a civil partnership, compared with 11% who are single, 6% who are widowed and only 1% who are divorced.
These figures are concerning, as major life changes, such as getting divorced or losing a partner, are in fact when people can benefit from professional financial advice. It’s a time when financial as well as personal resilience can often be impacted and where advisers can play a trusted and vital role in helping people navigate their way safely into a new financial future.
Let’s have a look at the key ways that an adviser can help, in the event of both widowhood and divorce.
Financial planning and divorce
People tend to be familiar with the concept of enlisting legal support to help navigate their divorce process but as the research shows, they are much less likely to consider the need for financial advice.
Divorce is typically an expensive process and engaging a financial adviser can easily be viewed as an avoidable additional outlay on top of legal advice. Without financial advice however, a financial settlement may not fully reflect the fair value of all assets, or ongoing financial needs, so adopting a collaborative approach helps to ensure that both parties have the best start possible in their new lives.
Women can also be disproportionately impacted by divorce, with research from Legal & General showing that women’s incomes fall by 33% following divorce, compared to just 18% for men. This is primarily related to pension wealth and the fact that women’s career journeys are often different to men’s.
As well as ensuring all assets are in the picture, involving an adviser from the outset also helps to ensure an understanding of the range of options or pitfalls they may offer, helping to achieve fair valuations and identifying the most suitable tax-efficient solutions.
Where a family lawyer is focused on achieving a fair split in the settlement, the financial adviser will focus holistically on the client’s ongoing financial needs and wellbeing. The division of pension assets for example can be complex and advisers can add huge value by identifying the optimal approach for each client’s situation, which could be a pension sharing order, a pension attachment or a lump sum to offset pension disparity on divorce.
Divorce can also be taxing in more than just the emotional sense so couples must be advised on tax-efficient solutions and referred to a tax expert if required. For example, the capital gains tax implications of a potential settlement or final court order need to be carefully assessed and resolving this process successfully can be much more nuanced than simply splitting a couple’s assets.
Financial advice is also equally as important post-divorce, to help rebuild financial wellbeing and employ a holistic approach to a changed financial situation and new life goals.
Financial planning and widowhood
Losing a partner is difficult enough but being widowed can often also result in significant financial changes, ranging from a decline in income, the management and paying down of debts to facing new tax considerations.
For example, with a co-signed mortgage, the responsibility will now solely fall on the surviving partner to make the regular payments and similarly with a joint credit card account, they will be liable for any outstanding balance, even if they never used the card.
The tax implications resulting from the change in marital status can affect tax rates, deductions and available tax allowances.
Establishing a new long-term financial strategy is therefore very important but it’s equally essential to avoid rushing into major financial decisions, such as buying or selling a house, significant changes to investment strategy or gifting large sums of money, for at least six months after a loss. This gives adequate time for the grant of probate and to get a clearer picture of the revised financial situation.
A financial adviser can help with both short-term and long-term planning, as well as being a neutral party at a time when an individual may be in quite a vulnerable position. In the short term, they will help create an inventory of assets to build a full picture of the current financial situation, including bank accounts, investments and property, as well as check past tax returns to uncover any additional assets and income. They will also review pension plans, annuities and life insurance policies about entitlement to benefits or proceeds.
Looking to the future, they will then work with individuals to create long-term financial goals and support with budgeting, prioritising expenses and eliminating any debt. Having at least six months’ worth of expenses in easily accessible and liquid funds is always viewed as a priority, so they will work to help rebuild this financial safety net if required.
Even if the surviving partner has no monetary concerns, it may be the first time that they have had to take the lead in their financial affairs and an adviser can play a key role in coaching them to have full confidence in their decision-making.
Both divorce and being widowed are times when people need to make important and often, life-changing decisions and professional financial advice should increasingly be considered as a valuable resource, to help create the best version of the future.
About the author
Richard Gillham moved into wealth management when he joined Progeny in 2021, following more than 20 years in investment management, primarily with Legg Mason.
Richard has expertise, as well as a strong personal interest, in sustainability, having worked closely with firms that integrate sustainability factors and balance profit with purpose. As well as his role as a Financial Planner, Richard is involved with Progeny’s ongoing sustainability strategy as a B Corp-certified company.
Outside of work, Richard likes to spend a lot of time with his three teenage children. He is also interested in politics and investing in companies that have a positive social impact.
