Five Steps to Staying Financially Secure after a Divorce

Divorce is not something that anyone plans to go through. Most people would choose a long and happy marriage over a painful separation, but with the UK divorce rate estimated at around 42%, a considerable amount of couples find themselves going their separate ways. While divorce will always be difficult on an emotional level, the practical problems it presents are often underestimated, particularly when it comes to dealing with the separation of finances. Couples will typically have joint financial arrangements with one person in the partnership taking a lead role. The ending of a marriage may therefore present a daunting challenge for someone that suddenly finds themselves financially independent but without the necessary knowledge to manage their assets successfully.

At W1M, we have come up with five steps for the newly divorced to put themselves on the road to financial self-sufficiency:

Improve your financial literacy

The financial world can be full of jargon, but it is important that you now get to grips with the basics. Investing is an important part of securing your financial future and understanding how it works is very useful. Everyone is familiar with cash. It is flexible and can be easily accessed through a personal bank account. Most bank accounts pay an interest rate but if the rate is lower than inflation cash is vulnerable to losing some of its value. The mainstays of most investment portfolios are stocks and bonds. Bonds provide a fixed rate of return over the period it takes for them to mature and are redeemed at face value at the end of their life. They can be issued by both companies and government entities and carry different levels of risk depending on the quality of the issuer. Shares give you a stake in the ownership of a company and rise and fall in value depending on its success. They also pay a variable dividend depending on the company’s profit levels. Both stocks and bonds can be bought individually or in groups known as indexes. Indexes are preferred by some investors because they give the holder a wide range of assets rather than concentrating risk in one security.

Spread your risk

Investing in indexes is one way to spread your risk, but anyone with wealth to protect should take an umbrella view of their assets and aim to avoid overconcentration. Risk can be lowered through ensuring your investment portfolio has exposure to multiple asset classes, currencies and geographies. The property market is often an attractive investment and one that W1M’s advisers can assist in helping you navigate. Alternative investments such as commodities can also provide an effective hedge against market turbulence and are worth investigating for those that are new to the investment world. Ultimately, anyone with wealth to protect should ensure that their assets are as shielded as possible from volatility.

Take advice from a wealth manager

Engaging a wealth manager early on is a good way to make sure your wealth is in safe hands. A good wealth management firm can provide sound advice on investments and connect you to experts in areas such as property, taxation, pensions, inheritance and education. When it comes to investments, you can decide on your level of involvement with the decision-making process. If you are new to the investing world, you can opt for what is known as ‘discretionary’ investing whereby your wealth manager will make decisions on your behalf. Sitting down with your adviser and working out what level of involvement makes you most comfortable will ensure the relationship is as convenient and fruitful as possible.

Embrace long-term thinking

Financial planning is essential for the newly divorced. The joint plan you had with your former partner will now have to be replaced with a plan that is tailored to your own needs. Creating a cashflow model will be useful. This will involve taking an overall view of your finances, looking at your income and expenditure plus your assets and debt. Projections can then be made on your future finances. If you have commitments to meet such as the funding of a child’s education or a mortgage, financial planning will be essential to ensure these are taken care of.

Don’t make rash decisions

The big decisions you make early on once you become financially independent will be some of the most important. Deciding on your living arrangements or how to invest your funds are choices that need to be given careful consideration. Taking some time to mull these things over before moving ahead will be valuable in the long run. You may find that all kinds of advice comes your way from friends or family members who will have your best interests at heart, but resisting the temptation to make quick decisions will ensure you make the right ones.

At W1M, we aim to help you protect your wealth by providing sensible guidance to make the right decisions, whatever your life circumstances.