How to split property and other assets in divorce

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How to advise divorcing clients

How to split property and other assets in divorce

Clients and their ex-partners can choose how to work out money and property issues when they set out to divorce or end a civil partnership.

Some even set out prenuptial agreements from the outset.

Whilst no one enters a marriage expecting to separate, prenuptial agreements are an increasingly popular option for young UK couples.

And couples that amicably agree on how to split their money and property can usually avoid going to court hearings.

But it is not always straightforward or simple. 

Naturally, things can get messy once discussions about money enter the picture, especially if the couple has a history of not talking about their finances, or if one person has been managing the household’s finances for much of the time they have been together.

“On divorce or dissolution of a civil partnership, all matrimonial assets will be taken into account as part of any financial settlement,” says Nigel Cayless, associate director at Sackers.

“[But] for many people their pension will be one of their main assets… [and] how pension benefits are treated will depend on each couple’s individual circumstances and the other available matrimonial assets and debts.”

But if pensions are not part of the settlement, a spouse may well still want to change their ‘letter of wishes’ to their pension provider about who should benefit from their pension after their death.

Assets once held in inheritance tax-efficient wrappers, such as perhaps shares in companies listed on the Alternative Investment Market, and business assets may need to be realised to fund a house purchase and/or the divorce settlement. 

Agreeing on the division of assets allows arrangements to be made tax-efficiently between the parties, a lower overall tax bill means both parties benefit, but if it is left to the court, a tax-efficient division of assets may be more difficult to achieve.

Often, negotiating a settlement with a former spouse is likely to cost you less and can be far more tax-efficient in the long run than disputing arrangements through the courts.

Sharing property

“With 42 per cent of marriages ending in divorce, it has unfortunately become a common lifetime event which impacts both parties and their wider families, especially in more difficult scenarios where couples are unable to agree on who owns what,” says Louisa Sedgwick, director of sales and mortgages at Vida Homeloans.

She adds that such circumstances can often lead to financial difficulty as legal bills and other expenses accumulate.

Indeed, she notes: “Homeowners are legally bound to their monthly mortgage payments irrespective of their marital situation, or otherwise may face arrears and fines.”

And when it comes to credit scores, divorced couples on a joint mortgage could see their credit scores impacted if the mortgage is not paid, resulting in potential difficulty obtaining credit in the future, suggests Ms Sedgwick.