First published by FTAdviser on 10 January 2023.
With the UK spending much of the past few years in a ‘permacrisis’ (and with no sign that this will change any time soon), many individuals will have approached the holiday break as an opportunity to reset and refresh.
Add the usual family pressures experienced at Christmas to the cost of living crisis and it is no surprise to find a lot of people marking the turn of the year with a determination to make new plans; often that involves taking the first tentative steps towards a divorce.
We owe it to clients facing one of life’s greatest challenges to take these simple but efficient and effective steps.
While January’s ‘Divorce Day’ is an urban myth, it is true to say that there are a number of new enquiries towards the end of the month and into February as people declutter the Christmas debris and finally have the available bandwidth to consider such a significant move.
Once a decision has been made, it can be easy to become lost in the maelstrom of choices available. Good advice is paramount, and the right adviser – whether legal or financial – can distil those choices and make a world of difference to what comes next.
Instructed professionals might, therefore, wish to consider offering the following practical tips when advising separating couples:
- ‘New year, new you’ is a frequent refrain at the turn of the year, but couples should not be lured into letting platitudes exert unnecessary pressure on them to get everything right at the first time of asking. Divorce and separation are not quick processes, nor are they usually the panacea for their problems. Even the most optimistic divorce could take the best part of a year to conclude.
- At some point, your client’s lawyer is going to ask for a summary of their assets, income and liabilities. Therefore, at an early stage the represented party should start thinking about their monthly budget, both in terms of short and long-term needs. This is an art, not a science and there is no binary solution, because every case is fact specific. You will want to help clients ensure that in the immediate aftermath of the separation they can meet their short-term household expenses and, looking ahead, maintain the costs of separate households. You will also be aware of a nascent industry of professional experts who specifically offer help with compiling budgets. Although it is preferable to be accurate, the rise in the cost of living means that household expenses may look different a few months from now.
Couples and their advisers should use this early period as an opportunity to carry out a financial stock-take.
Start assembling 12 months’ worth of bank statements; consider getting marketing valuations for any properties in which they have an interest; obtain three months’ worth of pay slips (and their last P60) or their tax return; the details of any business they have an interest in (for example, copies of two years of business accounts; any estimate of the value from an accountant), and prepare a summary of their liabilities.
Help your client to start thinking about what they will need from both a capital and income perspective.
The appointed solicitor will be able to provide a view on the extent of the financial disclosure required, and it may be that a short form can be agreed with the solicitor on the other side to keep costs to a minimum.
- Before your client’s first meeting with any instructed expert, encourage them to make a list of the burning questions they would like to ask and, if at all possible, send these in advance. Manage their expectations: their solicitor and financial adviser’s ability to advise will be limited by the amount of information available to them. As more data becomes known, the factual matrix may change, and as a result the advice they are given may evolve.
- Even with the advent of no-fault divorce taking the heat out of those early stages, it is still easy – and understandable – for a separating couple to want to apportion blame, even unconsciously. Although it is easier to preach than practise, try to get your client to focus on the bigger picture and the headline points. Their solicitor will be able to provide a steer on the issues that are (and are not) worth pursuing. That two-page Exocet missile might look expertly crafted on paper but how much further forward is that correspondence (and the client’s ire) taking them? Save the extended letters for when it matters – it will help save on costs.
- Clearly, independent financial advisers are crucial in the disclosure process, but other financial specialists are invaluable too. Tax advisers, for instance, can assist with the full spectrum of potential issues such as capital gains tax (noting the new regime that may be introduced in April 2023 that will help separating couples) or in respect of any trust interests (and the consequences of any sums advanced from those). Other experts such as family therapists, divorce coaches and counsellors can be brought on board, each adding valuable expertise. The latter can be particularly useful to help resolve any lingering emotional tensions that are traditionally an impasse to making clear-headed and informed decisions.
- If your client cannot resolve their separation amicably, then their solicitors will be able to talk them through the increasing menu of dispute resolution options. In fact, the full list has become mind-boggling – there is a mode for every situation in order to conclude the end of a relationship. However, the process can be completely bespoke, and obstacles quickly surmounted, if both parties are willing. Mediation is the most well known of these, whereby a neutral third party will chair the discussions between a couple towards an amicable outcome that both will normally run past their solicitors as a further reality-check before an order is drafted and sent to the court. While the mediator will not provide a decision, they will help test solutions. Sessions normally last an hour to 90 minutes and can deal with virtually any issue. There is also ‘child-inclusive mediation’, where a child meets with a specially trained mediator so that the former’s voice can be heard during discussions between the separating parents. Mediation has an inherent flexibility, which means that all the professionals referred to above – from family therapists to IFAs – can be used both in and outside the sessions to help move discussions along.
- Collaborative law is an oft-forgotten method involving a series of roundtable meetings between a separating couple and their lawyers, sharing information and advice to work quickly towards an agreed settlement. It is an unusual set-up because it requires everyone to work transparently and openly together, and it can be difficult for some lawyers (and clients) to look past the old adversarial approach. But when it works, it works well, and efficiently.
- Judges and court staff are doing an incredible job under testing circumstances, but there is no disguising the strain the system is under. Another alternative is to resolve the matter by way of arbitration. An arbitrator, usually a barrister, will make a decision for the parties. The benefits far outweigh the cons (in particular, the expense of paying for the arbitrator): the dispute can be litigated at a pace agreed between the parties (it could take a year using the court system, if not more – whereas an arbitration can be managed quickly and efficiently to a timetable that will move as fast as the divorcing couple is able), and the ‘hearings’ typically take place in a much more comfortable environment – usually a barrister’s chambers. This can also help stimulate negotiations. The other advantage is that there is usually no point too small to arbitrate on, which can avoid the logjam of a court application.
- However, your clients should not be afraid to issue proceedings if they are making no headway and one spouse is not engaging with the process. In the first instance it is always worth pursuing a conciliatory approach (for the sake of cost if nothing else) to seek to resolve a dispute with the minimum of fuss – but sometimes that just does not work. Clients should be advised not to sink too much resource into those efforts if no progress is being made. At this point, a formal court timetable – and the possibility of having to explain that lack of engagement to a judge – can provide some much-needed strategic momentum that might expedite a voluntary process. It is also perfectly possible to step outside that court timetable at virtually any point and pursue any of the other alternative forms of dispute resolution set out above.
- Sensible pension planning is essential. Each spouse will need to provide cash equivalent values for any and all pensions to which they have been contributing, as part of their obligation to make full and frank financial disclosure. Do not overlook a state pension valuation at the outset: even though the formal disclosure process does not require this number, it is an essential component of financial provision in retirement and the ‘true’ cost of buying an equivalent monthly payment would be sizeable. You will also be able to see whether there is any shortfall in contributions and factor those into your client’s discussions. The Pensions Advisory Group has carried out brilliant, instructive work in this historically overlooked area which has helped to streamline the thinking surrounding this complex asset.
Very few individuals will ultimately say that they have been through a really good divorce as the emotional toll tends to cloud their practical experiences.
But as professional advisers, we owe it to clients facing one of life’s greatest challenges to take these simple but efficient and effective steps in order to steer them through the process so they emerge as unscathed as they can possibly be.