Make sure break-up does not lead to financial meltdown

1 FAMILY HOME This will be by far the biggest single asset to consider in most cases. If children are involved it is likely the family home will be maintained and become the responsibility of one of the former spouses. If, however, the disposable income of the ex-spouse is much reduced as a result of the divorce, the lender may require a mortgage guarantor (e.g. their parents).


Home ownership can make a divorced person liable to a potentially large bill for CGT where this threat did not previously exist. This can be a complicated area if more than one property is involved. A newly divorced person with two properties should seek advice on the availability of CGT relief in the event of sale of one of the properties.


All separating couples should consider maintaining payments on joint life insurance policies, (particularly endowments tied to the mortgage on the home) until a final settlement is agreed. It can take just a single missed premium payment to invalidate the policy.


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These are a good method of making provisions relating to control of assets agreed to by both parties at the time of settlement. For example, if an ex-wife decides to carry on living in the former family home, putting the property into a trust can be used as an alternative to outright ownership. This could give the ex-husband some control over the future of the house if, say, a new man enters the life of his former spouse. Other assets such as cash or shares can also be put in a trust to provide a regular income.


Most married couples have "mirror wills", whereby should one die the assets go to the survivor and if both die simultaneously (or within 30 days of one another) they are passed on to any children. Divorced people might want to cut out the former spouse, which requires an alteration to the will.


A married couple share a combined IHT allowance of 650,000 which is free from IHT on their deaths. However in the case of a single divorced person (or bachelor, spinster, widow or widower) only the first 325,000 is tax-free. The family home is included as part of these assets.


When a male breadwinner dies at a relatively young age it is normally the case that his widow will receive a share of his pension. Should they divorce, part of the husband's pension rights can be transferred to the former wife or shared between them. Alternatively, there is the "clean break" option in which the wife waives any rights to her ex-husband's pension in return for a larger share of other joint assets.


When a divorcee remarries, the new spouse is immediately given the statutory legal rights previously enjoyed by the first spouse, such as the right to a proportion of the estate on death even if no will exists.If a divorced parent becomes estranged from his or her children and excludes them from the will, the children will also have a statutory right to part of the estate. However, any children of a new spouse by a previous marriage will not have any automatic rights of inheritance unless they are adopted.


People named as guardians in the event of a couple's children being orphaned may no longer be acceptable to one party if "sides" were taken during the breakdown of the marriage. For the same reason, divorcees may have to reconsider the person to whom they previously granted power of attorney, which gives authority to someone to act on one's behalf in the event of becoming seriously mentally or physically impaired.


Review all pension, life insurance and endowment policies to check who the beneficiaries of these policies are. Pension benefits can be nominated by completing a form and this can be changed relatively easily. Life assurance based policies written in trust may need to be updated in order to take account of new circumstances.

THE financial upheaval that usually accompanies divorce can be almost as difficult as the emotional trauma. But there are steps that both parties can take to safeguard their assets and limit the effect of adverse financial changes on themselves and any children. Peter Shand, of Edinburgh law firm Murray Beith Murray, shares his tips on handling the financial repercussions of divorce.