Divorcees invariably need financial advice.
There are so many areas where professional legal advice requires complementary financial planning and one area that is too frequently overlooked is on separation or divorce.
Too often the essential legal support needed for separating couples, is given without the direct involvement of a financial planner who is equipped and qualified to offer the ancillary financial advice. Either that, or the referral from the lawyer or the involvement of the financial planner comes too late in the process.
An unwanted side effect of no-fault divorce.
Of course, the ability for couples to seek ‘quickie, low fee divorces’ online, and the introduction of the ‘no fault’ divorce, whilst designed to help, are not necessarily always having a positive effect. Indeed, there has been an increase in divorces finalised without a financial order in place. A Research paper from respected thinktank LCP from March 2022 revealed that 1 in 3 divorces are made without financial orders, and even more concerningly, many of these do not include pension orders. Given that research was before the no fault legislation came in to force and DIY divorces increased, it is even more worrying.
Divorce in Later Life.
It is against this backdrop and with the huge increase in emphasis by the SRA and the FCA, being placed on supporting clients in vulnerable circumstances, which those going through divorce certainly are, that we welcomed some excellent research from insurance giant Legal & General. Accepting of course, that there is vested interest from the life company, who are prominent players in the retirement arena, we still consider this paper – ‘Divorce in later life: the expert’s handbook’, a worthy piece of work. And whilst its primary audience might be financial planners like Matrix Capital, later life mortgage and pension specialists, we would contend that it is a wonderful resource for family solicitors as well.
Worrying statistics!
The guide is focused on the hugely increasing segment of the divorce arena, the over 50s. This older age group now represents 30% of the divorce market.
While this succinct and informative document is primarily talking to a financial advisory audience, we wish to highlight some of the facts, which might call in to question whether legal professionals are always bringing their financial colleagues into play.
Only 12% of people divorced over 50 consulted a financial adviser!
17% did not consider any detail of their finances in the process.
29% waived their right to their partner’s pension. (30% of women waived their right as against 17% of men.)
21% went to no one for advice or guidance, not even family or friends.
Only 8% used equity release to allow one person to buy the other out.
These are a handful of the incredible stats from L&G’s research and all of them set alarm bells ringing, posing far more questions than they offer answers[CH1] .
Whilst disregarding, the 19% who sought no advice, it still strongly suggests that too often family lawyers are not always ensuring that their clients seek collaborative financial advice or better still refer them for it. Any financial planning that starts post settlement may well still be valuable, but it is unlikely to be as valuable as advice offered in conjunction and alongside the legal process.
Pensions blind spot.
As Cecilia Furner, a Distribution Director at L&G suggests in the guide, having a blind spot when it comes to both individuals’ pensions [CH2] can negatively impact their future retirement lifestyle, as they can be the largest asset outside the property or in some cases larger. “Financial advice shouldn’t start once the settlement is reached. Instead, highlight up-front what value you can bring during negotiations and how you can help clients achieve their goals in the most tax-efficient way.” It is vital that the pensions are considered and for solicitors, this must mean bringing in a fully qualified and experienced financial planner, ideally a Resolution accredited Pension on Divorce Expert (PODE) early on. In all honesty, if there are existing pension arrangements involved, surely this is essential to ensure a fair and balanced outcome.
Vulnerability.
Budgeting and planning for a full and comfortable life after separation is critical, and this is where we, as financial planners, would use cash flow forecasting, perfectly complementing the legal process of the divorce. One particular observation in the guide which we found so telling and true, and it is why legal and financial professionals need to work together – “Vulnerability isn’t something that describes someone as a person; it’s about the circumstances they find themselves in.” Going through a divorce is without doubt a such a set of circumstances but not receiving the appropriate financial advice alongside the legal process, is likely to make a client feel even more vulnerable.
Conclusion.
The L&G guide is a though provoking and insightful read and we are certain there are sections that might make you think more about involving financial planners early in the separation process, particularly where there are pension assets to be assessed and included in the settlement.
Matrix Capital has the qualifications and expertise so please do not hesitate top contact us to discuss how we can support you and your clients.