Splitting finances on divorce - how to cope

Divorce is an inevitably sad and traumatic experience. But by making sensible financial arrangements couples can avoid some of the heartache that comes from untangling finances and carving up assets. The first step is to find a good solicitor.

A personal recommendation is a good option or contact Resolution(Tel: 01689 820272), whose member lawyers are committed to trying to resolve a divorce amicably. For some, the end of a marriage is swift and friendly while for others it can turn into an embittered divorce battle. Few are prepared for the financial devastation that results, especially from legal fees that range from £8,000 to £30,000.

"If a couple can settle their financial arrangements amicably when a relationship breaks down they will save themselves a fortune in legal fees," says David Allison, partner at The Family Law in Partnership, a group of specialist lawyers, counsellors and mediators, "the best thing you can do if you decide to split up is to sit down around the kitchen table and work things through. If that fails then seek mediation and consult a family law solicitor. The very last step should be to battle in out in a court of a law.

Taking a divorce to court is very expensive and can end up eating a big slice out of your assets.

If there are children involved then it is worth considering mediation. Lawyers normally offer this service, with prices ranging from £100 to £350 per hour or contact the Family Mediators Association who can help with any problems, from how to share the responsibility of children to dividing assets. But they do not deal with the legal aspects of divorce.

Under the law all fathers are obliged to pay a percentage of their income to their offspring in child maintenance. The figures suggested are 15% for one child rising to 25% for three. With one in three marriages in Britain ending in divorce every year, at a total cost of £2bn, property is the largest and most contentious asset. Each year at least 35% of couples are forced to sell their home to cover the cost of their divorce.

Selling a much-loved family home and downsizing to two smaller properties can be heart-breaking.

Both partners may find it difficult to obtain a new mortgage. Some lenders offer mortgages for divorcees that treat maintenance payments as if they were salary but beware of sky-high interest rates. If a mortgage is in your spouse's name, you will still be entitled to a share of the proceeds on divorce.

"Courts have a much greater degree of discretion when dealing with the joint assets of married couples," says Imogen Clout, author of Which? Divorce, "A wife who has not contributed towards a mortgage may still have a right to claim on the property because the court views time as well as money spent during the marriage as an investment in the relationship, and an asset in itself.

"If a wife has spent a considerable amount of time decorating a home she could be said to have improved the value of the home and her contribution will be taken into account. Other contributions towards the marriage include money spent on household bills, food and even clothing. These can all be used to place a claim against a property."

Pensions can be another bone of contention for parting couples. While a man will normally have built up a large pension pot by the time he reaches his mid-40s, the same is not generally true of women who often take career breaks to raise children.

Many ex-wives opt for outright ownership of the house, instead of getting involved in the complexities of their husband's pension. The Government has now introduced a pension splitting law which allows the wife to get a transfer value of half her husband's pension and plough into her own personal pension.

Financial tips on going solo:

• Change your Will immediately in case you die before the divorce is finalised
• Value everything, including pensions, property and investments
• Make photocopies of important financial documents for your solicitor
• Keep an eye on your credit rating as your partner's credit history may be held on your file for some time after separation and could affect any application you make for credit
• Ask your mortgage lender for a redemption statement
• Organise an enduring power of attorney so that someone can act on your behalf if you become incapable
• Close joint bank accounts and set up new accounts in your own name - this may prove difficult in the early stage of separation (proof of address is often required and one partner may have left the marital home.
• Renew your PIN numbers.

24 February 2006 © Moneyextra.com

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Our senior editor Robin Amlôt recommends you should consider taking independent financial advice before acting on any article. Please contact us for help with your individual circumstances if any assistance is required.