Rebecca Williams, Divisional Lead of Financial Planning at Rathbones: “Divorce is often a time of emotional stress and financial readjustment, and I’ve seen people experience it in very different ways. Some delay starting the process because they’re worried about money and how their lifestyle might change, especially when children are involved. Others find the emotional strain so overwhelming that the financial side doesn’t always get the attention it needs during settlement discussions. And for some, divorce brings a sense of financial freedom and a chance to reset their priorities. Whatever the circumstances, having a financial planner by your side can make a huge difference, helping you navigate change with clarity and confidence.”
Rebecca Williams outlines six key financial considerations in divorce.
Pensions
“People often focus on the family home during a divorce, but pensions are just as important. They account for 35% of household wealth, second only to property at 40%. Overlooking pensions could have lasting consequences, especially later in life when there’s little time to make up shortfalls. There are three main ways to deal with pensions: sharing them outright for a clean break, earmarking income for an ex-spouse after retirement, or keeping the pension and letting the ex-spouse take other assets, called offsetting.
“Each option has pros and cons, and understanding the true worth of both defined benefit and defined contribution schemes is essential. And don’t forget the State Pension – usually this cannot be split between spouses. Women, in particular, may have gaps from career breaks, so checking your State Pension record and plugging any shortfall is crucial for long-term security.”
Property and housing costs
“The family home is often the biggest asset in a divorce, and the emotional pull to keep it – especially when children are involved – can be strong. But clinging to the property doesn’t always make financial sense. Staying put could mean sacrificing other valuable assets like savings and pensions, which could undermine long-term security. Before making a decision, weigh up the options: sell, buy out, or co-own. And don’t overlook mortgage affordability, stamp duty (if you are buying a new home), and ongoing upkeep."
Capital gains tax implications
“Transfers of assets between spouses or civil partners are not usually subject to capital gains tax (CGT). The gain, or profit, if an asset has increased in value is deferred until the receiving spouse sells to a third party. This relief applies for up to three tax years after a couple permanently separates, and it can continue indefinitely if transfers are made under a court-approved consent order. However, if assets need to be sold to a third party - for example, to raise cash for a financial settlement - CGT may apply unless allowances or exemptions can be used. That’s why it’s so important to consider any potential CGT when valuing assets and negotiating a fair settlement. Understanding this upfront can help you avoid unexpected tax bills and make more informed decisions.”
Consider insurances and update your will
“Insurance often slips down the priority list during divorce, but it’s vital to review your cover. Life insurance, health cover, and income protection may need updating, especially if policies are tied to joint liabilities or dependents. If you have existing policies that will continue – like employer death in service schemes, make sure you check your nominated beneficiary/ies as it is likely to include your ex-spouse. Beneficiary nominations can be reviewed and updated at any time so it’s good idea to check regularly in any case. While you’re at it, revisit your will. Divorce doesn’t automatically cancel old instructions, and if you haven’t made a will, your assets will be distributed under intestacy rules – which may not reflect your wishes.”
Cash flow and budgeting
“Life after divorce often means a very different financial reality. Understanding your day-to-day spending is crucial for negotiating a fair settlement and planning your lifestyle post-divorce. Using cash-flow planning with a financial planner can make a huge difference. This plan looks at your income, assets, and expenses to show what’s affordable and what life after divorce could realistically look like. It provides clarity and confidence, helping you make decisions based on a clear picture of your future rather than uncertainty or worry.”
Professional advice
“Bringing in a financial planner early can make all the difference. If advice comes after a settlement is agreed, the chance to align divorce terms with future lifestyle needs may be lost. A planner can stress-test whether monthly maintenance will cover costs today and tomorrow and weigh up lump-sum options. Using detailed cash-flow forecasts, they’ll factor in spending, interest rates, and inflation to calculate what’s truly needed for long-term security. Coordinated advice at the outset helps avoid costly mistakes and ensures a fair, sustainable outcome for both parties.”
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