What financial loose ends need to be tied up during a divorce?
Commonly forgotten financial loose ends can create big problems for future relationships.
Commonly forgotten loose ends after a divorce such as joint insurance policies, Wills and bank accounts can create major financial problems if they are not dealt with at the time says Boodle Hatfield, the leading private client law firm.
Katie O’Callaghan, Partner at Boodle Hatfield, the leading private client law firm, outlines the five common loose ends that divorcing couples need to deal with.
1. Write a new Will to reflect your divorce and any new relationship you may have
If you don’t update your Will after divorce to take into account a new partner or children from a new relationship then you may be setting the scene for very complex legal disputes.
For example, your new spouse could lose a large part of the inheritance to the children from a first marriage. After divorce, your ex-spouse will no longer be able to benefit from your original Will even if you intended them to.
Katie O’Callaghan, says: “More complex family structures, created by divorces, are seen as one of the main causes of the increase in Will disputes which have increased by 26% in five years to 225 disputes in 2017, up from 178 in 2012.”*
2. A joint life insurance policy will need to be cancelled
If you don’t cancel a joint life insurance policy after divorce and your former spouse is named as the beneficiary, then they will still legally be entitled to the pay-out, not any new partner.
3. Be aware your former spouse may also remove you from joint financial products such as medical insurance, leaving you without cover
After divorce your spouse may cancel the many joint financial products you may have benefited from during marriage. Obviously being removed from a policy like a medical insurance plan means you’ll no longer be able to claim under that policy.
You may be able to negotiate as part of any financial settlement on divorce that your former spouse continue to provide medical cover for you and/or your children. However, any cover that is granted is not likely to be provided indefinitely and so it is important that there is clarity as to when such cover ends so that you can obtain your own policy at the relevant time.
Katie O’Callaghan, says: “As the population ages and more couples marry later, health insurance is becoming an increasingly prominent issue in divorce proceedings. Older couples going through divorce will often need to take out their own new medical insurance to ensure they are fully covered once the marriage is over.”
4. Assign responsibility for mortgage payments and household bills
Pending a decision as to what should happen to a family home in the long term, it’s important to ensure there is clarity with your ex-spouse over who is responsible for household bills and a mortgage especially if one of you has moved out of the property. Often the financial status quo is expected to continue in the interim. If the home is to be transferred to your ex-spouse as part of an overall deal, it is important to ensure that electricity bills, gas bills etc are also put into their sole name so that you are not liable for them going forward.
Katie O’Callaghan says: “Let your utility providers know if you have moved out following divorce to ensure this does not get overlooked. After the divorce is final, bills should be in the name of the homeowner.”
5. Joint bank accounts and credit cards must be cancelled
Any joint bank accounts or credit cards will need to be cancelled after a divorce to sever your financial ties to one another and to prevent one spouse running up large debts.
Katie O’Callaghan says: “Closing any joint accounts is very important. Not only to prevent unwanted debt, but if for any reason a payment is missed and an account falls behind, both of you and your partners credit scores are going to be affected.”
*Year-end 31 Dec. 2017, latest data available; combination of contentious probate actions and claims under the Inheritance (Provision for Family and Dependants) Act 1975
This article first appeared in EPrivateClient on 17 June 2019.