Financial stability post-divorce is a crucial part of moving on with your life so that you can live with confidence, independence and dignity. Divorce financial planning is a huge topic, encompassing everything from divorce debt management, to retirement planning, to alimony and child support.
In this guide we will look at why it’s so important to factor your post-divorce expenses into your financial planning during separation (not after) and how you can go about rebuilding savings after divorce.
Calculating your budget after separation can be daunting, but it’s so important to manage your transition to becoming a single-income household. As experienced family mediators, we have handled this process hundreds of times before, and we are in the perfect position to support you on your new journey.
This page is primarily focused on what happens after divorce, but you should make sure you understand what a financial arrangement is. You can agree your settlement before, after, or at the same time as your divorce is finalised, but it’s important to have clear, mutually agreed arrangements in place at an early stage.
Marcia Mediation’s financial mediators can work with you on this. We will help you to understand the overall process, any specific circumstances that may apply in your case, and facilitate amicable negotiations to make progress faster and with mutual respect, to improve outcomes for all parties.
No two separating couples are alike. You may have one income or two. You may have children and/or treasured pets. You may have substantial cash savings and assets. You may have substantial debts in one or both names. You may be nearing (or in) retirement.
One thing all couples have in common is the need for in-depth divorce financial planning. Even if it’s just to work out your budget after separation, it allows you to move forward with your eyes open, in full knowledge of what your new economic situation will look like.
But how do you do that? Your separation mediator is a good starting point. At Marcia Mediation we partner with professionals in a range of disciplines. We offer a dedicated family financial mediation service and can refer you to an Independent Financial Adviser (IFA) if we think the complexity of your case demands one.
It’s likely that you will be living as a single-income household post-divorce, regardless of your circumstances during your relationship. Running costs are typically higher (i.e. the total of your and your ex-partner’s household bills will usually be higher than when you lived together) and it’s important not to be caught off-guard by this.
A good starting point is to work out how much money you have coming in. That includes your income, if you have one, any interest on savings, pension income, and an estimate of the alimony and child support payments you will receive.
Separating finances early in the divorce process is sensible, as unfortunately there are cases where one partner transfers or simply spends shared savings for a variety of reasons. Open individual accounts in your own name and make sure they are not tied to your joint accounts (e.g. if you apply for an individual credit card with a bank where you have a joint account).
Try to get every type of account you are likely to need. That may include:
If you already have ISAs, it’s important to be aware that these are individual accounts, so if you need to move funds from them as part of your financial settlement, you may lose some of the tax-free benefits.
There may be other tax implications of divorce. The most direct of these is Marriage Allowance, which allows you to transfer up to £1,260 of your personal tax-free allowance to your partner, reducing their annual income tax by up to £252.
If you co-own a limited company or have other tax-efficient structures in place, these should be taken into consideration. This is a very complex area and you should speak to your divorce mediator and/or an IFA about it.
Unfortunately, financial stability post-divorce can mean making some sacrifices. As a single-income household, you may need to cut back on some luxuries (e.g. shopping, eating out and takeaways/deliveries). We understand that money may already be very tight – especially if poor financial management is part of the reason behind your separation.
Work out the areas where you can’t cut back, such as utility bills. Even here, you may be able to transfer to a different tariff, claim single-person discounts on council tax, or find other ways to spend less. It can be hard, but we’re here to help, so again ask your separation mediator if you’re finding it difficult to decide what to do.
You should make it a priority to build an emergency fund after divorce, even if it means cutting back even more in other areas. It’s challenging to try to save at a time when you’re also making some major lifestyle adjustments, but having 3-6 months of expenses saved in the bank (in an instant access account) can give you much more confidence and much less stress.
A common mistake is to treat divorce and retirement planning as two separate things. The financial arrangements you make during your separation will still be in place when you reach pension age, and could have a big impact on your quality of life. Make sure you understand if you are entitled to a share of your ex-partner’s pension fund and don’t feel that it’s greedy or impolite to insist that you receive a fair portion of it.
Rebuilding your emergency fund after divorce should be a short-term goal – ideally you want that safety net in place as soon as possible – but you should also have some medium-term and long-term financial goals to work towards.
Post-divorce debt management is not something to ignore. During a stressful separation, it’s easy to think you will deal with debt at a later date, or that you will be able to close a joint credit card without it affecting your individual credit rating. Get financial advice if you need it, as a single debt in arrears can send your credit score through the floor, making it much harder to set up individual utility accounts in your new home.
Managing post-divorce expenses is an ongoing commitment. There may be some surprises in your new cost of living, which is one reason why you should try to have at least some level of emergency fund after divorce. Remember, inflation means that prices will continue to increase over time too.
Try to keep on top of your expenses throughout the separation process. It might be sensible to agree to transfer some savings into individual accounts before closing your joint accounts, so there is never a time when you cannot access your money (delays and admin errors can and do occur).
A rainy-day cash stash can be sensible. Some people find it easier to keep track of their spending when they pay using physical money. If you’re concerned about basics like food shopping, consider setting up a regular supermarket delivery order of the essentials, to help resist impulse buys and luxuries.
Every household faces unexpected expenses, ranging from medical emergencies to home repairs. As a single-income household, you’ll need to be able to cover those costs. Prioritise rebuilding savings after divorce and putting money back into your emergency fund.
If something happens very soon after separation and you’re not yet ready to deal with it, speak to your mediator. There may be financial support (or at least some independent advice) available. You’re not alone and you will get through this.
Regularly review your budget and remember to keep an eye on divorce debt management. Try not to spend on credit unless you can pay it off in full before it accrues any interest. It’s not worth running up debt for the illusion of having savings in the bank.
Minor adjustments over time will help you to align your lifestyle with your new circumstances. Again, every household has to make changes to adapt to higher expenses or lower/interrupted income, but during divorce with everything else going on, this can feel like a lot to face. It will get easier.
It’s worth repeating the link between divorce and retirement planning, especially if you’re separating at quite a young age. Speak to your mediator about this. Your financial independence in your pension years should not suffer because of a failed relationship when you were young, so make sure that this is not an area that is missed in your financial settlement.
Divorce financial planning is not easy and it’s not always possible to sustain the same level of lifestyle that you have previously enjoyed. With that being said, alimony and child support payments should help to make sure that you are not placed into poverty.
The best approach is for both parties to calculate an estimate of expected post-divorce expenses and go from there. Speak to your mediator and other advisers to make sure you’re aware of everything you’re entitled to (e.g. your partner’s private pension) so that you can negotiate a fair financial settlement.
Child maintenance payments ensure that both parents make their financial contribution to the cost of raising any children from the relationship. If your child is under 16, a child maintenance arrangement is mandatory.
Your arrangement can be agreed privately, with or without the help of a mediator. A private arrangement is completely flexible – you can change how much is paid and when, if your circumstances change, or for any reason at all. Alternatively, you can use the Child Maintenance Service to calculate a means-tested amount of child support. They have certain enforcement powers, so if you’re not confident your ex-partner will pay on time, this may be a good option for you.
Divorce and retirement planning can feel like two entirely separate issues, but they can actually be very closely linked. For example, if your partner has a private pension, you may be entitled to claim a share of those savings in your financial agreement. Your mediator can help you to be aware of any such entitlements, so they can form part of your settlement.
Many older people also choose to divorce. People are living longer and finding their freedom in retirement. There’s also a growing number of same-sex divorces among pension-age individuals. If you divorce post-retirement, you should not lose your state pension, as you can apply for it to be reassessed based on your ex-partner’s National Insurance contributions.
Rebuilding savings after divorce can feel like an insurmountable task, but it’s not out of reach, even as a single-income household. If you have young children, remember that they will eventually leave home and start work. They may even be able to contribute towards your household expenses while they are still living with you.
It’s likely that you will need to budget after separation, as living separately almost always costs more than living together, and you may no longer have access to the same level of income. Financial stability post-divorce is an adjustment process, but it brings with it independence and the opportunity to follow your own path, with the help of an expert divorce mediator to guide you on your way.
If you have any questions, call us on 07791 560 161 or fill out this form
