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While the financial benefits of advice are often discussed, the value it can add in terms of wellbeing is sometimes overlooked but is just as valuable. This can be particularly important when going through a divorce.

The improvements to wellbeing that financial advice can offer can be difficult to assess. After all, every client will have differing goals, priorities and challenges. Research from Royal London has measured how professional financial advice can support emotional wellbeing.

Financial advice helps people feel in control and confident

The research found that the vast majority of the 17 million people who seek financial advice in the UK benefit from a positive experience. Overall, it helps people to feel confident, in control of their finances and gain peace of mind. Clients rated three key areas that highlight the positive impact of a relationship with a financial adviser:

• Quality of advice and expertise (82%)
• Communication style (81%)
• Trustworthiness (81%)

One of the important ways the report found advice is adding value  through understanding financial matters.

Those receiving advice feel up to three times more confident in their understanding of products and their finances than those who haven’t worked with an adviser. Some 23% of non-advised individuals said they would not know where to start when asked about life insurance, compared to just 7% of those taking financial advice.

The financial settlement and decisions you make at the time of divorce, have a long-lasting impact and it’s important to understand products and your options.

It’s a step that boosts emotional wellbeing. Some 63% of clients said they felt secure and stable, as opposed to 48% who did not receive advice. The report highlighted how it can have an impact on emotions too. Four in ten (41%) of those that do not take financial advice said they feel anxious about their household finances, compared to three in ten (32%) who receive advice.

On average, financial advice clients are £47,000 better off

While the emotional benefits of advice are important, the financial benefits are too. After all, financial freedom can help you to achieve goals and feel more confident about your future.

The report also covers previous research conducted by the International Longevity Centre UK.  It found that customers who took financial advice were on average £47,000 better off. Those who fostered a long-term relationship with their adviser were up to 50% better off than those who received one-off financial advice.

Tom Dunbar, Intermediary Distributions Director at Royal London, said: “We have long suspected that the benefits of advice go far beyond financial gains alone and our research confirms that individuals who have received advice are more likely to feel confident about the future, and less likely to feel anxious or worried.

With many couples separating after having married either later in life or for a second time, the issue of how pensions should be shared and whether pensions should be shared so as to exclude pension accrued prior to that marriage has become a major issue requiring advice from Family Lawyers.

Fortunately in the case of W v H (Divorce financial remedies) [2020] EWFC B10), the Courts have given very welcome guidance as to the approach that should be taken when sharing pensions.

In that particular case the wife was aged 50 and the husband 48. They had lived together since 1999, married in 2005 before then separating in 2016.

The main assets of the marriage were the pensions.

The husband had a large Defined Benefit scheme (schemes which pay out a secure income which increases each year, such as Final Salary or Government Pension Scheme) with a Cash Equivalent  of over £2 million and a small Defined Contribution scheme ( a scheme in which the scheme member builds up a fund which can then be used to buy a retirement income) and the wife had a modest Defined Contribution and Defined Benefit scheme.

The main argument between the parties was

• Should the pensions be shared to achieve equality of capital value or equality of retirement income?
• Should the courts exclude that part of the pension that was earned by the husband prior to marriage/cohabitation?

In this case the Court decided to make a pension sharing order which would seek to equalise retirement income.

Furthermore the pension sharing applied to the entirety of the pension rights and did not exclude those accrued by the husband prior to the marriage.

The court stressed that although there is no “one size fits all” solution and that there are situations where equalising capital values may be appropriate for example where pension assets are relatively small, where parties are relatively young, or where pension assets are relatively straightforward, there will also be situations where pension sharing to equalise income would be considered appropriate. These would be cases where:

• The pensions are medium or large and the parties needs on retirement are required to be met.
• Where one or more of the pensions is a defined benefit scheme
• The parties are no longer young and retirement is on the horizon.

The Judge made particular reference to the Report of the Pension Advisory Group (PAG Report) and quoted from the report itself: ‘Given that the object of the pension fund is usually to provide income in retirement, it will often be fair … to implement a pension share that provides equal incomes from that pension asset … Equality of income will often be a fair result … A division that pays little or no attention to income-yield may have the effect of reducing the standard of living of the less well-off party significantly.’

The Judge also rejected the husband’s argument that pension accrued by the husband prior to the marriage should be excluded as this would have resulted in the wife being unable to meet her needs.  The Judge again referred to the PAG report which reported that the vast majority of cases will be needs based and that in needs cases the Court can consider sharing any assets irrespective of when they were acquired in order to meet the parties’ respective  needs.

Pensions are complex assets but The Black Country Collaborative Group are fortunate to have Specialist Family Lawyers and Independent Financial Advisers who will be able to guide separating couples every step of the way to help achieve a fair resolution through the Collaborative Process.

It is always preferable to obtain expert guidance as early as possible.

This is true whatever the situation, but is very important within a Collaborative divorce. By having an expert on hand early they can assist in making sure that the discussions and negotiations are being held from a position of knowledge.

Take an example where an expert is not involved at the start of discussions, maybe due to the perceived added cost of including another professional.  Lawyers are not permitted to provide regulated financial advice and thus it is important that an appropriately qualified professional is introduced to provide support and ensure that negotiations are based on true values.

Say a divorcing couple have their home, cash savings, investments, pensions and an inherited property that is currently rented out.  There will be tax implications for some of these assets both on a transfer as part of the divorce and also selling them in order to provide liquidity, possibly for a further house purchase.

A Financial Neutral is a financial expert with a knowledge of the divorce process, especially Collaborative Law.  They will assist the parties in exploring their future options and suggest ways in which the assets could be split for each party to achieve their future objectives as closely as is possible.

Without this early input, discussions may take asset values at their face value and not account for any tax or inflexibility, thus the agreement may be flawed and whilst the intention may be to have an equal share of the assets the reality may be very different.

By having the neutral involved early they can assess the situation and if they feel they are not required they will step back and observe from a distance, they may be required again later in discussions and as they will already have an understanding of the parties needs will be able to assist as and when required.

The costs of having a neutral involved early in the process are likely to reduce the overall costs rather than increase them and also result in a fairer agreement.

Ian Hawkins is a director of Oculus Wealth Management (Wombourne)Ltd and Southdown Consultants Ltd.  He isboth a Financial Neutral and a PODE (Pension on Divorce Expert) and is thusideally suited to assist lawyers and divorcing couples.

Many people find that the collaborative approach to divorce is a much healthier way of moving forward after a marriage breakdown than the adversarial, and often divisive, process of going to court.  However, there are still difficult decisions to make and a forensic accountant can provide some of the help you both need to reach find a workable solution.

Your collaborative lawyer may recommend that you involve a forensic accountant.  There is no prescribed ‘role’ for a forensic accountant in the collaborative process – our input is entirely tailored to your needs.

The first role is often as fact-finder, collating the appropriate financial information and explanations relating to business assets.  Both parties to the collaborative process sign up to full financial transparency, but the forensic accountant brings the skills and knowledge needed to scrutinise the data so it can be relied upon and used to generate creative solutions.

The second possible role of the forensic accountant is valuer.  We are often asked to value businesses or shareholdings, comment on the ‘liquidity’ in the business (i.e. what could be extracted to fund a settlement without harming the business) and the likely income that could be achieved from the business going forward.  This can be reported to you formally in a report, or informally in a round-table meeting.

The third role can be as educator.  If one party runs a company, the other often feels ‘in the dark’ about the business and its value.  By bringing that spouse up-to-speed on financial issues, it helps them to feel comfortable to reach decisions so the process can move forward. This can be achieved in a one-to-one meeting with the non-business-owning spouse to talk through the latest accounts and explain what they indicate in terms of liquidity and income.  This is a good chance for them to ask questions in a safe environment.

The fourth role of the forensic accountant can be as an impartial facilitator.  Once the value of the assets is established and the parties have some goals in mind, we can work together with your lawyers to identify appropriate options (e.g. share transfers, property divisions etc.), discuss and analyse the likely tax consequences.  A forensic accountant can act as the reality-check when brainstorming solutions.  This is also an opportunity for you both to raise questions and concerns.  Together with your lawyers we can help you find a resolution that best fits your family’s needs.

I have advised many clients going through a divorce, on occasion following the divorce I have continued to advise both husband and wife separately.  Whilst the outcomes of the divorce from a financial view have been varied and specific to each clients circumstances it has been the process that has had the biggest impact from an emotional and personal wellbeing perspective.  I am not really there to provide support at this level but one cannot help but be drawn in and sympathetic to the feelings of longstanding clients.

The clients that have fared better from an emotional standpoint have been those that have divorced through a collaborative process.  Through this route all the discussions have been carried out face to face with both individuals having the support of their legal advisers within the 4-way meetings.  There have been difficult discussions but they have never been in doubt as to what their aims were and where there was conflict it was in the open with a full and frank discussion.  Whilst this has an emotional price, once the agreement was reached they could move on with a continued respect for each other.

Whilst some who have divorced through the ‘traditional’ adversarial approach have come though relatively unscathed others have not fared as well.  The uncertainty as to what their former spouse is thinking or what they are going to ask for next weighs heavy on them.  The financial outcomes may be similar in the end but the respect has gone and there is very little chance of any ongoing civility in communications.  This causes further problems where children are adversely effected.

Any couple who have gone through a divorce will say it is not easy but there are definitely some ways that are easier than others in terms of the emotional price paid.  Collaborative may not be suitable for all but it is certainly worth a look.