December 1, 2004
Splitting.. THE BILL ; Don’t See Red If You Break Up
HALF of all marriages in Britain now end in divorce - and that means financial misery for many.
In fact, the monetary cost of splitting may even exceed the emotional pain. But there are ways to minimise the financial hurt.The biggest problem when a marriage ends is that two households cannot live as cheaply as one.
And the most practical difficulty is separating your financial relationship simply and quickly.
But much of this can be eased with a little forethought. Here are the key areas to consider when you are getting hitched...
A joint account sounds romantic but can cause friction.
Problems may arise if one of you overspends, for example, or splashes out on a luxury purchase without discussing it first. Remember that if you go overdrawn, you are both liable for the debt...
HSBC suggests you each keep your own accounts and have a joint one into which you each pay an agreed amount to meet bills and other joint spending.
"A three-pot system gives you the best of both worlds," says a spokesman.
If your relationship breaks down, you should close the joint account and advise your bank on how bills will be met in the future.
For similar reasons, separate savings accounts give you each more control. There have been all too many instances of one "ex" running off with the joint savings.
And the best savings accounts - ISAs - can't be in joint names anyway.
Think twice before you allow your partner to share your credit card account. Remember that you, not they, will be legally liable for all the transactions - and debt.
The cheapest way to insure your life and protect the mortgage is with a joint policy.
But that will prove problematic if you split up. Replacing it with separate cover when you're older - and perhaps in poorer health - could prove difficult and costly. It only costs a few pounds more to get separate policies at the outset. And if, God forbid, you both died, your children would get a double payout to provide for their future.
Legally, your partner can claim a share of your pension if you divorce.
Until recently, this could be done only by "earmarking" part of the benefit for your ex to claim when you retire.
Now, part of the pot can be "split" and invested in a separate pension plan for the benefit of the other partner, making a clean break possible.
But few divorcees are doing it. "Most lawyers ignore the pension - at their client's expense," says Peter McGahan, of Worldwide Financial Planning.
"You don't have to split the pension but you should take its value into account when divvying up your joint assets."
If the pension is split it will leave both partners with insufficient funds for their retirement. And you will both have to add to your pot to make it worthwhile.
A much better solution is for you both to have a worthwhile pension at the outset.
Too many couples assume the husband's pension will keep them both but that's not true even if a couple stay together.
Most women start a pension
while working but stop while bringing up a family.
Stakeholder pensions allow a non-working parent to carry on contributing - even if your partner provides the money.
And although you're not paying tax, the taxman still adds a basic- rate tax credit to your pot.
If you have a scheme which offers death benefits to the spouse and children, you should specify who the money will go to. This should be reviewed if you divorce.
Who gets this will have to be sorted out.
But remember that you are both held liable for paying the mortgage. So do come to some sensible arrangement between the two of you and your mortgage lender.
Every couple - rich or poor - should make a will to sort out where the money will go should you die and, if you both die, who will get custody of the children.
Unlike marriage, a divorce does not annul a will. It assumes that your "ex" has died or disappeared.
Your spouse may also be executor or joint executor - which you may no longer want.
So make a fresh will to cover the changed situation.
How you handle divorce can make a big difference to your pocket. "People don't go into relationships thinking they'll split up," says Harry Katz, of independent financial advisers Norwest Consultants.
"But nonetheless you should be clear from the start that if it does go wrong, everything will be split down the middle."
Though if there are children, their guardian will get more.
"Your best protection is to ensure your partner continues with her or his career, even if you have children," adds Harry.
"There will be more money in the pot and they'll have their own pension.
"Don't set out to get the maximum from your partner. Try to be civilised. Making a legal battle out of it is a waste of money and the split will still be roughly the same.
"But you'll both end up with a lot less and the lawyers will pocket a lot more."