The emotional strain of going through a divorce and adjusting to a new life can be overwhelming. Amidst the waves of change, you will inevitably be confronted with addressing your financial resilience, and this too can have its toll.
Regardless of your circumstances, a divorce will most often have an impact on your finances and the road back to financial stability and independence can seem daunting – but it doesn’t have to be.
This guide provides five simple steps to help rebuild and strengthen your financial well-being after a divorce as well as renew your sense of control over your financial future.
- Understand your outgoings:
A good place to start is to think about your core expenditure – these are the expenses essential to meet your basic needs such as food, utilities, home, car insurance, commuting costs, etc.
Build a list detailing your core expenditure and go through each item, one by one, asking yourself if you’re getting the best deal available. For this exercise, it’s worth shopping around, comparing the services offered by competing companies.
Once you’ve added up your core expenditure, deduct these from your monthly cash inflows and you’ll have an idea of the amount available for your discretionary expenditure, which can be divided up between leisure expenses and considering strategies to build up your savings.
It’s worth considering regularly reviewing both expenditure lists to make sure you stay on track, as you are more likely to stick to your budget if it is written down and regularly looked at.
- Plan for short, medium and long-term savings:
The next step is to determine a suitable level of emergency fund to be held in cash in case of any unexpected costs, such as medical expenses, car and house repairs, etc. Keep these funds in an easily accessible account and look for the best interest rate available.
With any surplus funds, make use of your tax-free ISA allowance each year which can either be via cash, stocks and shares or a combination of these.
It is also important to continue to contribute as much as you can reasonability afford to your pension, and take advantage of any employer pension contributions by opting into your workplace pension plan. Particularly if you have a more limited budget following your divorce, even a small contribution can make a difference to the value of your plan over the longer term.
- Protect yourself:
Step three is ensuring you are financially protected.
For instance, make sure you have suitable life and critical illness insurances in place. This is particularly important if you have long-term financial responsibilities, like paying a house mortgage, caring for children, etc.
If you’re receiving child or spousal maintenance, then you may want to check that your ex-spouse has life cover in place to ensure you continue to receive alimony in the event of their premature death.
If you are still working and have not yet reached retirement age, it’s worth considering an income protection policy which can be used to meet your income should you no longer be able to work due to unforeseen longer term illness or injury.
You should also check whether you have any death in service cover via your employer and if so, whether you need to update your nomination form as per your wishes if these have changed following your divorce.
Finally, you should find out whether you have an income protection policy and private medical insurance provided by your employer.
- Update your Will and nomination forms for your pension:
Following your divorce, you may want to update your expression of wish form for your pension benefits as this will provide an indication to the trustees of your pension scheme around who you would like to receive your pension funds.
As soon as you separate from your spouse, seek legal advice immediately in relation to your Will as it may no longer reflect your wishes and you are considered still legally married until a decree absolute is granted.
- Manage your debts and mortgages:
The final step involves determining the level of your debts (if any) and making sure that you have the most competitive rates available. Your bank, mortgage provider or broker can help with this.
After mortgage payments are made, check if you have any available funds to make additional repayments to any debts you have. It’s best to allocate this surplus payment to the highest interest rate debt in the first instance.
By following these five steps, you will emerge financially stronger and more resilient from your divorce – paving the way for a bright and secure financial future.
Melissa Henderson
Melissa joined BRI Wealth Management's Financial Planning department in early 2019 as a Paraplanner. Prior to this, she worked for Financial Planning firms in Birmingham and Worcester. Melissa graduated from the University of Leicester with a 2:1 degree in Law, holds the Advanced Diploma in Financial Planning and received her Chartered status in 2019.
