Lawyers are increasingly recognising the value of independent financial advice when it comes to splitting financial assets between divorcees.
According to Kay Ingram, director for national advisory firm the LEBC Group, couples need to have a good understanding of all assets and liabilities and current and future income sources when preparing for divorce.
She said this often resulted in legal firms contacting advisers to get specialist help. “Divorcing and separating couples can often benefit from independent financial advice alongside legal advice when considering how to split their assets and income on divorce”, Ms Ingram said.
“Most lawyers recognise that where substantial pension assets are available these need to be referred to a specialist for advice on how to share their value between the couple.”
LEBC works with clients and their legal advisers to ensure that all aspects of the financial settlement are researched thoroughly, which Ms Ingram said was essential to help promote fair settlements between couples and to take full account of the “hidden value” of certain assets, such as pensions and current and future liabilities such as mortgages and tax liabilities.
Further complications have arisen due to financial regulation. For example, pensions taxation changes have also added complications to divorce sharing orders. The recent announcement by Chancellor George Osborne to reduce the lifetime allowance for pension savings, from £1.25m to £1m will also need to be taken into account.
“The tax bill on a shared pension can be very large indeed if the right steps are not taken when agreeing a share between husband and wife and also the order in which the agreed sharing order is then implemented.
“In a recent case, we saved one couple over £600,000 of extra tax they would have paid without our advice. This is larger than average but savings of £30,000 or more are common where larger pension assets are being shared.
“Understanding the very complex pensions savings tax regime and how it could impact the husband and wife is beyond the scope of expertise of most lawyers and many turn to us for help with this”, Ms Ingram added.
Ms Ingram’s warning came after HM Courts and Tribunal Service launched an urgent investigation into a software error on an online form used by divorcing couples across England and Wales.
The software error, on the Ministry of Justice website had been present since April 2014 but has only just been uncovered and rectified.
April 2014 was when the Mortgage Market Review came into force, and the form in question - Form E - had failed to take into account the changes under MMR.
The changes meant lenders had to look more closely at the affordability of any proposed borrowing rather than multiples of gross income; therefore couples embroiled in divorce proceedings could end up being unable to afford to buy or remortgage because of maintenance agreements.
However, the form did not take account of liabilities such as mortgages, maintenance and affordability, meaning that some of those who have settled divorces in the past 20 months could have to re-open negotiations.
According to family law solicitor Mark of national firm Slater Heelis, it is not yet known exactly how many people were affected, but that there are 120,000 divorces in England and Wales each year.
He said: “The issue with the form, which records couples’ financial details, could mean thousands of financial settlements are based on incorrect calculations.”
Her Majesty’s Courts and Tribunal Service is to contact those affected.