When you’re going through a divorce, it’s common to feel concerned about the future of your finances. In this article, we discuss six top tips for sorting out your finances after a divorce.
When you go through a divorce, your finances completely change, especially when you have gone from living with two household incomes to one. You need to ensure you have provisions in place to protect what you do have left and to learn how to move forward with only one household income.
There are many options available to protect your finances once you and your ex-spouse have made a decision on their divorce financial agreement, including a clean break order, financial order and spousal maintenance.
If you want to learn more about how you can protect and sort your finances out after your divorce, keep reading to find out more…
Does a Divorce Automatically Cut Your Financial Ties?
It’s easy to think that once you and your ex-spouse have obtained the Final Order, previously known as a Decree Absolute, that all your financial ties have been cut, but this isn’t the case.
Divorced couples will need to make arrangements, known as a divorce financial agreement. There are many different options available to the divorced party, but if the couple wants to cut all financial commitments and ensure they are safe from future potential claims. It’s important to have it legally binding with a clean break order or financial order.
You can proceed with your life without one of these, but it can leave you liable, so it is better to have provisions in place.
How Can You Sort Out Your Finances After a Divorce?
1. Clean Break Order
A clean break order is an order given by the court that severs all the financial ties between you and your ex-spouse. This is often used by couples who don’t have a significant amount of assets to divide.
You cannot pay spousal maintenance where you have selected a clean break order as you hold no legal financial obligations to each other. You can pay the spousal maintenance prior to the clean break order; this will be known as a deferred clean break.
2. Financial Order
When you and your ex-spouse are able to negotiate a divorce financial agreement, this doesn’t make what you have decided legally binding. This means, in a couple of years you may find that a financial claim has been made against you by your ex-spouse.
However, to prevent this from occurring, you can make a financial order, which is a financial agreement between the parties that is legally binding.
3. Spousal Maintenance
Spousal maintenance is paid by the husband or wife to their ex-spouse following a divorce. There were two types of spousal maintenance, one type which was paid to their ex-spouse for a period of time, and another known as joint lives order, where spousal maintenance is paid for the remainder of the parties’ life.
No matter the type of spousal maintenance, if either party dies or the recipient dies, it will come to an end.
4. Setting an individual budget
Now that you are divorced and single, if you haven’t started a new relationship, your finances will be entirely different to how they once were before. You’ll need to consider how to budget with only one household income and how to pay bills by yourself.
5. Update your Will
When you marry, you more than likely will update your Will, given that your spouse becomes a beneficiary. After a divorce however, your Will remains the same, but your ex-spouse does not benefit at all unless you make it so by updating the Will.
Your ex-spouse will not be set to inherit your estate in the event of your death unless your Will specifically states that they are a beneficiary. So, to ensure the people you desire get their inheritance, you will need to update your Will.
6. Consider how your pension will be divided
There are also many different actions that can be done in terms of your pension, which is often the biggest asset other than property to consider in divorce. There are certain pension options which allow you to have a clean break from your ex-spouse, while there are others which don’t allow for this. However, it’s very rare that they are used.
- Pension Offsetting – This type of pension division is where the value of the pension will be offset with another type of assets, such as the family home, investments, or something else
- Pension sharing – This type of pension division is where one party has a responsibility to supply the other party with a percentage of their pension in one lump sum
- Attachment order – This type of pension division doesn’t allow for a clean break, so it is rarely used. One party will be required to pay a portion of their pension to their ex-spouse when they start receiving it
For more advice on the pension splitting types available, see MoneyHelper.
Sorting and Protecting Your Finances is Important
What we can conclude from this article is that making arrangements to sort and protect your finances is incredibly important, and the good thing is that there are a number of things which can be done.
No matter the type of divorce financial agreement you and your spouse agree on, you need to make the decision legally binding so no future financial claims can be made against you by your ex-spouse.
Please be advised that this article is for general informational purposes only, and should not be used as a substitute for advice from a trained financial professional. Be sure to consult a financial professional if you’re seeking advice about your finances post-divorce. We are not liable for risks or issues associated with using or acting upon the information on this site.