According to a survey carried out by Kleinwort Hambros more than a third were unsure where they stood in the event of a divorce – despite 39% also admitting they would be reliant on their partner during retirement.
More than a quarter told the French-owned UK private bank they had no protection in the event of a relationship breakdown.
As highlighted in the Mills v Mills verdict at the UK High Court on Wednesday, in which a spouse returned to court in a unsuccessful bid to up her allowance, the financial aspect is usually the most hotly contested and long lasting legacy of a separation.
Youth less pragmatic
The survey, which questioned over 1,300 people who are married, in a relationship or in a civil partnership, revealed that those of an older age are more likely to have some form of protection in place.
This is compared to younger ages, of which half (50%) of those aged 18-to-24 admitting to having no form of protection, with only a quarter (26%) of those aged 55 and older admitting this.
“Separating from a partner is always a life- changing situation and can be a very isolating experience,” said Paul Kearney, head of private banking for Kleinwort Hambros.
“Yet when approached in the right way, the process provides an opportunity to take control, and give your life a new direction and focus.
Understanding
Having a good picture of your spouses financial position is also important.
However, one in ten of the respondents said they had no understanding of their partner’s finances while two thirds said they had a full picture.
Most (74%) said they knew their loved-one’s salary, fewer (37%) knew how much they received from pensions and 26% said they knew how much they withdrew from savings. A fifth said they knew about stock dividends and a similar number of respondents knew about bonuses when they came in.
In the event of divorce boosting your understanding is an important step said senior planner Amanda Alexander.
“At the earliest possible stage, it’s important to identify all assets that can be divided as part of your settlement, including insurance policies, pensions, investments and property,” she said.
“Valuing assets at any point in time, such as an investment portfolio, may be difficult. It is therefore essential people get the right advice to get a full understanding of the ever-changing regulatory and financial landscape.”
An adviser should take a holistic perspective and use cash flow modelling tools to estimate and plan for single life, advises Alexander.
Kleinwort Hambros five tips for a successful financial split:
- Understand your expenditure
- Gather information on accounts
- Think of employers who may have provided the spouse with pension benefits
- Consider if there any benefits that would disappear on divorce e.g. private medical insurance
- Review your Will
Legal perspective
Commenting on the survey lawyer Alex Davies, partner & head of family for Cripps, said: “Undoubtedly, marriage or civil partnership offers the best financial protection of any relationship model because of the court’s powers to redistribute assets and income in the event of divorce or dissolution.
“Prenuptial agreements have become increasingly common in the last 10 years as couples are convinced of the advantages of arranging their financial affairs in advance. This does require honest and frank conversations, but many people find that a positive experience.
“For those not wishing to formalise their relationship in those ways, cohabitation agreements are extremely effective in setting out the financial rights and responsibilities of each partner whilst living together and what they can each expect if they separate.
“Whichever relationship model a couple choose, the law is always concerned to ensure that children are properly provided for. Many people don’t realise that they are entitled to make a financial claim for the benefit of children if their relationship breaks down, even if they are not married or in a civil partnership.”
