The Role Of Financial Advisers in Divorce Proceedings

One of the most complicated parts of getting divorced is reaching a financial settlement.

Normally the separating couple will reach an agreement between themselves, before asking the court to give it legal standing with a financial consent order.

In an acrimonious divorce, it may be necessary for the court to intervene and decide on how the assets should be divided.

Either way, it will be necessary to ascertain the full financial position of each party as well as the financial impact of divorce, to work out a fair settlement.

Although divorce lawyers have a certain understanding of the financial aspects of divorce, a professional financial adviser can generally provide more comprehensive assistance in this regard.

What is a financial adviser?

An independent financial adviser (IFA) is a professional financial advisor regulated by the Financial Conduct Authority (FCA).

IFAs provide independent and impartial advice to their clients on a wide range of financial matters, from tax, pensions and investment options to mortgages.

Their job is essentially to improve the financial position of their clients by helping them make optimal financial decisions, taking into account their individual situations.

In the context of divorce, there are many ways in which a financial adviser can help you as your financial picture should look different once you have finalised your divorce settlement.

If you have agreed to a pension sharing order then it’s vital that you receive professional advice before taking any further steps.

The same can also be said if you are receiving a lump-sum order from your ex-spouse as this new wealth can be used to improve your current financial position.

Why would you instruct a financial adviser during a divorce?

There are a whole variety of ways in which an IFA can help out during divorce, including:

• Form E – In order to achieve a financial settlement with a court order following divorce, it is necessary for both ex-spouses to fully disclose their finances.

One of the most crucial elements of financial disclosure for purposes of divorce is the completion of Form E.

Although the government provides official guidance to help people fill out Form E if financial affairs are complicated it may be useful to ask an IFA for help with completing the form.

• Pensions – One of the most important assets, after the family home, often consists of the individual pensions of the divorcing parties and being able to accurately value these pensions is therefore crucial to achieve a fair outcome.

However, many people are unaware of the value of their pension at any given time and, although pension providers generally issue annual statements which show the amount of pension income that will be paid on retirement, these do not always provide information about the current value of a pension.

An IFA can help to ascertain the full value of pensions so that these can be reflected correctly in the overall matrimonial pot.

• Assessing the finances of both sides – As discussed above, Form E needs to be completed by both divorcing parties to enable the court to make a financial order.

However, by the time a marriage breaks down, there may be very little trust or love left between the divorcing parties, and one side may try and withhold certain assets.

An IFA may be able to analyse the financial affairs of the other party and find out if they have failed to disclose certain assets.

On the other hand, they can help assess the financial needs that their own client may have the following divorce, and present these to the court (eg via Form E) to the maximum benefit of their client.

• Mediation – Financial advisers are increasingly playing a part in the divorce mediation process, during which a couple tries to reach a financial agreement before resorting to the courts.

IFAs may be invited to join mediation meetings either as co-mediators (if they have the necessary qualifications) or as experts.

They can often help to steer negotiations in a pragmatic direction, particularly where issues relating to pensions. In a collaborative divorce, an IFA can act for both parties in a neutral capacity.

• Tax and mortgages –  Since both parties will often be facing a brand new financial situation after divorce, they may find it useful to consult an IFA to help them navigate their financial affairs.

This could include various different issues such as how to achieve tax efficiency (eg in order to mitigate the loss of certain taxation perks of being married), and if they need to obtain a new mortgage an IFA can help out with that too.

Pros and cons of using a financial adviser in divorce

IFAs can often speed up the divorce process by applying their expertise and helping the divorcing parties to navigate the financial element of the divorce process, as well as assisting with financial matters post-divorce.

Furthermore, financial advisers can ensure that their client is achieving the best possible financial outcome from the divorce, both by looking into the financial affairs of the other spouse and assessing the full extent of financial needs of their own client.

The only real downside to using an IFA during divorce is the cost – and the other party may be more inclined to also appoint their own IFA which can escalate overall divorce costs.

However, although there is an initial outlay, using an IFA can save money in the long run.