Breaking up? 9 financial considerations for separating couples

Family solicitors often report a surge in inquiries about divorces in January, leading to it being dubbed ‘Divorce Month’.

Although it’s thought the January breakdown in marriages or separation of unmarried couples may be linked to the stress of the festive season and seeking out new beginnings in the New Year, financial problems are also thought to play their part – and are a huge consideration if/when any separation or divorce is finalised.

Indeed, research by Austin Lafferty Solicitors has found 39% of UK adults who are either married or in a civil partnership would be worried about how a divorce or separation might affect their financial security, and of these, 69% said they might delay or reconsider their decision to divorce or separate due to financial concerns.

John Roberts, a partner and director at Austin Lafferty, says: “Each party needs to find a solution that gives them financial independence which allows them to live separately without the need to support the other.”

And Stephanie Potter, pension on divorce expert at Shackleton financial advisers, says: “Divorce isn’t just a legal process, it’s a major financial restructuring, and decisions made early in the process can have long-term financial implications.

“It’s not only the emotional fallout that causes lasting damage, but the financial decisions made under pressure. Understanding risks and opportunities can make a real difference to life after divorce or separation.

“The greatest difficulty will be separating emotion from financial reality. Decisions made to achieve short-term comfort or symbolic wins can undermine long-term security.”

If you’re splitting up, these are the financial considerations according to the experts…

1. Identify all assets and liabilities

Make a detailed list of all your assets and financial liabilities. “There’s a requirement for full and frank financial disclosure, and a good starting point is to identify all assets and liabilities, including property, savings and investments, pensions, businesses and debts – both joint and personal,” Potter advises.

2. Understand expenses

Roberts advises both parties to keep a clear record of all income and expenditure following separation, as this will form the basis of any assessment of spousal maintenance or financial support for the lower-earning party.

“Consideration should also be given to anticipated future expenses, as a short period of record-keeping may not reflect typical annual costs, particularly where irregular or substantial expenses arise, such as vehicle repairs, school fees, or other significant outgoings,” he says.

3. The family home

Often the most pressing concern when a couple separate is the family home. Potter says options include selling it, one party buying the other out, or a deferred sale until children reach a certain age (referred to as a ‘Mesher Order’).

She says the desire to stay in the property, particularly if your children live there, is understandable, but warns that when a home is mortgaged, lenders will reassess affordability.

“This can be problematic where one party’s earning capacity is reduced, or if they’ve taken a career break to care for children. While a Mesher Order provides a temporary solution, it also prolongs financial ties and potential uncertainty.

“The key is to understand what’s sustainable and affordable in the long-term.”

She points out that care needs to be taken if the home is being sold, particularly where one party moves out following separation and before sale, as a portion of the sale could be liable to capital gains tax (CGT).

“There’s relief available to mitigate the CGT, but it would be prudent to seek advice,” she suggests.

4. Other properties

Other properties such as holiday lets, buy-to-lets and second homes acquired after the marriage and before separation would be classed as matrimonial property and shared between the couple on divorce, says Roberts, who explains: “Any income from such properties would be shared between the parties. It wouldn’t matter if the property was in the name of only one party – the important question a divorce solicitor would ask is when the property was purchased.”

5. Quirky assets

When couples start divorce proceedings, their focus is often on the division of high-value assets like property and pensions, but Roberts says it’s not uncommon for lesser-value but more personal assets like antiques or art to be overlooked.

“Although these assets may be of comparatively modest financial value, they frequently become a source of significant dispute, particularly where one party attaches personal importance to them or where the assets relate to a hobby or interest,” he says, pointing out that any resulting disagreements may be driven as much by emotion as by monetary worth.

“For the purposes of financial settlement, all such items are treated as matrimonial assets and must be addressed accordingly, whether through sale or by agreement as part of the wider division of assets,” he explains.

The main exceptions to this are gifts from third parties and inherited assets.

6. Debts

Debts that are acquired during the marriage are matrimonial debts, stresses Roberts, who explains: “It doesn’t matter if they’re in one spouse’s name only. A solicitor will take this debt into consideration when reviewing each party’s settlement.”

7. Pensions

Pensions remain one of the most overlooked assets when it comes to divorce, says Potter, with research by Royal London finding only 11% of divorces end in pension sharing.

She says pensions are taxed differently to other assets, and it’s recommended they’re looked at in isolation. They can be shared using pension sharing orders and attachment orders, and can also be ‘offset,’ meaning other assets are granted in lieu of a pension share.

She says: “The temptation might be to agree that one party keeps their pension in exchange for higher equity or sole transfer of the family home or other assets. While this is reasonable, it’s equally important to have an understanding of the pension income and options available in retirement, and what’s being given up.

“The family home might provide short-term solutions and security, but it doesn’t provide an income in retirement.”

8. Assessment of financial disadvantage

Where one party has been financially disadvantaged, for example if they took care of the children so their partner could go to work, this may be considered a special circumstance within the financial settlement, Roberts explains.

“In such cases,” he says, “the disadvantaged party may be entitled to a greater share of the matrimonial assets to reflect that imbalance. The law doesn’t require an equal division of assets but rather a fair division, assessed on the facts of each case.”

He says this may result in an unequal division, such as an allocation of 60% of the assets to the disadvantaged half of the couple.

9. Freezing orders

A freezing order (aka an arrestment order in Scotland) is a court order that effectively freezes funds in a bank account or wages to prevent them from being moved, spent or hidden before a financial settlement can be enforced.

Roberts says the orders sit at the more extreme end of divorce litigation, and aren’t needed in straightforward cases where both parties cooperate and provide full financial disclosure. “They become necessary when one spouse refuses to engage with the process, withholds information about their finances, or shows clear signs of attempting to dissipate or conceal assets,” he explains.