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This account demonstrates how good, independent financial planning can take the sting out of divorce and faciliate an acceptable and permanent settlement.

I was recently working with some clients who had filed for divorce and had reached deadlock on how to arrange their finances post-separation.  Their financial situation was relatively straightforward, they owned:

A family home in London, worth £500,000

An investment property worth £250,000

He had a pension worth £400,000 and she had a pension worth £30,000

There were no children to consider. They wanted a clean break and a 50% share of assets seemed to both to be fair.

The wife (40) was somewhat younger than the husband (48) and wanted to remain in the London flat, whilst the husband was keen to escape the rat race and move north, where he had his eye on a property worth around £400,000.

On the face of it there was a relatively straightforward solution. He might keep his pension whilst she kept the flat. The sale proceeds of the investment property could be used to balance the payments.

The drawback to this option was that it meant much of the capital the husband received was held in his pension, which he was unable to draw until he was 55 and that it left him with insufficient capital to buy a new home. Furthermore, the wife also had an eye to future and was keen to secure a proportion of his pension, so that she might look forward to a comfortable retirement. This feeling was reinforced when we provided her with a forecast that demonstrated despite her young age, as things stood, she was set for a rather impoverished retirement:

In this chart, the blue bars demonstrate actual income received and the red bars shortage of income to expenditure.  You will note that by the time she reaches 75 her income is no longer sufficient to meet outgoings, and in fact she is reliant solely on the State Pension.  The reason behind her fall in income can be explained in the chart below.

Here the pink bars show her cash holdings, blue bars her ISAs, and green bars her pension.  There is clear upward trajectory in savings between now and her retirement age of 65, but an even steeper downward trend after she retires and starts drawing on her savings.

After some thought and various iterations, we came to a solution that worked for all parties.  Unusually, she was to draw a mortgage of £125,000 against the flat, which was to paid to the husband in exchange for some of his pension.  This allowed her to retain the London flat, and collect a share of his pension, whilst he was provided with sufficient capital to buy a new home.

The final agreement was:

Wife Husband
London Flat £500,000 £0
Mortgage -£125,000 £125,000
Investment Property £0 £250,000
Pension £215,000 £215,000
Total £590,000 £590,000


We analysed this settlement to see how it would benefit the wife now and in retirement, which was displayed in the following charts.

Despite her higher cost of living in the near term, owing to the mortgage repayments she now needed to make, we had now managed to ensure financial security through to 95 – an extra 20 years.  Clearly the sacrifice of taking the mortgage in the short term was worth it in the long-run.

Her pension pot now reached a value of around £400,000, compared to £150,000, had this financial arrangement not been agreed.

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