Getting coupled up and combining the finances is something that's given plenty of thought – it's an exciting time, after all – but less thought tends to be given to what would happen in the event of an uncoupling. As a result, untying the knot can have long-term financial consequences, with a lack of savings posing a serious concern.
Divorcees twice as likely to have no savings
Research from Zurich UK shows that divorced or separated people are twice as likely to have no savings or investments compared with those who are married (32% vs. 14%), highlighting that the financial strain of divorce can be more sustained than many people think.
This could have a significant impact on the financial future of divorcees, particularly as many don't prioritise longer term savings goals. Indeed, only 28% of those who are divorced or separated are saving for later life (compared with 53% of married people), with 65% focusing on short-term goals instead, such as a holiday or paying school fees for children or grandchildren.
As a result, 42% fear that a lack of savings will prevent them from achieving their aspirations in later life, a close second to poor health (51%). Their current goals could be impacted, too, with 54% of divorcees believing that not having enough savings will be a key barrier, compared with 41% of those who are married or in civil partnerships.
"Divorce can be an incredibly challenging time, both emotionally and financially," said Anne Torry, head of Zurich UK Life. "Understandably, the focus is naturally on splitting immediate assets, but it's important that the long-term is also part of the planning. In fact, after the family home, a pension can actually be the biggest asset at stake, so protecting this in the first instance is crucial.
"Taking small steps such as reviewing everyday spending to identify a saving that can be used to increase monthly pension contributions will have a huge impact over the long term. In a low interest rate environment, a professional adviser can also help to create a plan and make the most of savings available. The earlier action is taken, the more likely it is that people will be able to achieve their aspirations now and in the future."
Shore up your post-divorce finances
Embarking on a new phase of life means finances will need to be carefully considered, and Zurich has compiled a few top tips to help divorcees bolster the books:
- Create a new budget. Household income will change after separating, so it's essential to go through your finances. Keep track of your incomings and outgoings, ideally by using a budget tracker – a pen and paper will do, but there are plenty of online tools available to help – that can help you get organised and, if necessary, help you to spot where you can make cutbacks.
- Protect your credit score. You could well be surprised at how many financial products and agreements are shared with an ex-partner – from utility bills to mortgage repayments and even credit cards – so it's worth checking your credit record and severing any former financial connections to protect your score.
- Close joint accounts and open new ones in your name. All joint credit cards, current accounts and savings accounts need to be closed, paid off in full or at the very least changed to a single name, and new ones opened solely in your name instead, protecting your financial future in the process.
- Think about your pension. Your pension is probably the last thing on your mind, but it's vital to plan ahead to ensure a comfortable financial future. You'll want to pay close attention to how a pension pot is divided, something that's particularly important for women, who may have been depending on their former partner's provisions for their retirement if they don't have a pension pot of their own.
- Don't forget about protection. If you already have joint life cover in place, check the policy terms to see if the contract can be amended to cover both parties individually. You may also be able to increase the amount of cover following key life events, including divorce or separation, something that could well be necessary if you have to take on a new (or larger) mortgage or other debts. Take advantage of any additional benefits that can be offered by protection polices, too, such as legal or emotional support.
- Update your will. An existing will is unlikely to be appropriate following a divorce or separation, so while this again may not be something at the top of the agenda, make sure to update it as soon as possible.
What next?
A new phase of life needs new financial products, so compare the top savings accounts, current accounts and credit cards to get started. You may need a new mortgage, too, and if you need a bit of a cash injection to cover any extra costs incurred in the divorce, use our personal loan calculator to find a cost-effective deal.
