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Cash Flow Modelling on Divorce

DS Seager Media & Matrix Capital

Divorce is, for too many, an unfortunate life event and one that often creates an unsettling financial insecurity. Marital breakdown can throw an individual’s financial plans and the investments that power them into disarray. This may have a negative effect on future lifestyle aspirations..

At Matrix Capital we have found that using cash flow modelling during divorce negotiations can help to assess and identify an individual’s financial needs and make sure that any financial settlement which is reached is fit for purpose, from their perspective at least. If we are in a situation where your client has already received their settlement, the emphasis, using cash flow modelling would be on managing realistic expectations of spending and lifestyle goals for the future and ensuring that they do not run out of money.

Our specialist financial planning support can be instrumental in assisting your clients review their circumstances, re-establish their goals and navigate their way through what may be uncertain territory. The knowledge that your client’s financial situation is being continually reviewed by a fellow professional, should help deliver peace of mind.

What is a cash flow model and why does your divorcing client need one?

Essentially, a cash flow model or forecast, is a detailed summary of your client’s finances. It takes into account all their assets, liabilities, income streams and expenditure. It can be a complex or daunting task for certain clients to organise and fully understand their finances especially in circumstances where they have not been directly responsible for them during the marriage. We find that building a plan with them makes it easier for them to understand what type of settlement they require, which of course will also help you to help them.

For those clients going through a divorce, developing a realistic and sensible cash flow model will assist them to ascertain the level of income they will need for their future. In addition to taking into account day-to-day spending it can also include additional future requirements, retirement income, the cost of dependents such as school fees and even expenditure on holidays, and ad-hoc items such as house improvements. Inflation, future returns investment growth, discussed and agreed with your client, as well as interest rates and taxes will also be factored in.

Of course, It is not always possible for a client to maintain the same standard of living in the aftermath of a divorce and a cash flow model can highlight this and help the client to manage spending and expectations going forward. Different scenarios can be modelled in order that comparisons can be made and discussed as part of the negotiations.

What about post settlement?

A cash flow model is essential for managing future expectations. If it shows that the client has the potential to run out of money, it is far better to know this at the outset and review spending accordingly, rather than be unpleasantly surprised further down the line.

Establishing a financial plan once they have reached a settlement is essential for your client, but this will be worthless if they fail to continue planning and it is vital that they review their objectives at least annually to assess whether they are on track to achieve their lifestyle aspirations. Changes might have to be made or objectives amended as time progresses and we would meet with your client at least annual to this end.

If a capital lump sum has been awarded, cash flow modelling can be used to work out how to structure a suitable investment portfolio that can provide income in the most tax efficient way and also in line with the attitude a client has to investment risk.

Why work together?

Our cash flow modelling tools which also facilitate budgeting, enable lawyers and ourselves at Matrix Capital to collaborate to support clients going through a divorce and create a structured plan for the long term. With expertise in ever evolving areas such as pension sharing, investments and financial protection, our highly qualified team is here to help you and your clients through all the difficult stages of the divorce process and hopefully enable then to view the future with a degree of confidence.

By working together, lawyers and financial planners can ensure that their separating clients can undergo as smooth a transition as possible to their new lives. Our cash flow modelling tools are a fabulous and practical way of ensuring that a client has sufficient money to fund their day-to-day life, future needs, goals, and aspirations and ultimately their retirement.

To discuss the benefits of cash flow modelling on divorce, please contact us at Matrix Capital for a meaningful discussion on his we can support you and your clients. We would also be keen to elaborate on how we use the tools in other areas that may be relevant to you firm, such as in planning for the future cost of care or in the negotiation of a PI settlement.

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