The recent high-profile divorces of two of the world’s richest men, Jeff Bezos and Bill Gates, have shown if there was any doubt before, that divorce knows no boundaries and can impact anyone at any level of society. It is impartial but not impersonal. There is a lot of emotion wrapped up within a home and if reconciliation is inconceivable then the value of having a professional(s) assess the intricacies of your relationship without emotion can be invaluable. An independent aid to assist you in being able to divorce with a clear set of eyes, as it were.
A top-down approach to Divorce planning
The order in which anyone might approach a divorce arrangement will depend on a number of factors but can broadly be prioritised in order of pressing need. In the majority of circumstances this would mirror the below structure but as with any home there are variations to what is deemed the ‘norm’ and your normal will never be identical to that of even a friend of similar age and circumstances.
What is most pressing and why?
- Maintenance Payments
A cornerstone of any divorce agreement is the agreement and payment of maintenance payments. This could be to support a spouse only who has been partially or fully dependent upon their sole income earning spouse for a number of years or to care for both spouse and children.
Before agreeing any maintenance figure a full analysis of the expense needs for both spouses and their children, if any, is needed. This analysis should extend to long after children are fully educated through college and needs to take into account the costs of two homes – possibly two mortgages or rental agreements.
And then there is the issue that maintenance payments to a spouse are tax deductible against the payor’s income but taxable against the recipient. A very important point to note is that any maintenance payments for child support are not tax deductible and care must be taken with regard to both labelling and the duration of these payments. These points are relevant as any capital sums in asset trade-off calculations are not tax deductible in any circumstance.
- Protection Cover
Once maintenance payments are in place it is important to have a variety of protection covers in place to account for the event of an interruption to this vital source of income. The first being Income protection cover. This would ensure that maintenance payments do not stop in the case of your ex-spouse incurring an major illness or injury that impacts their ability to earn.
In alignment with professional financial planning standards, we would also recommend taking out of a Life cover policy on the life of the maintenance payment payer to cover the risk of death and the abrupt ceasing of payment risk that this event would bring about.
If the maintenance payment is for a fixed term then decreasing life assurance cover can be used. Such cover is more commonly used for mortgage protection arrangements and is cheaper than the level fixed term policies – an important consideration if your overall expenses may be increased under the divorce agreement.
- Household Expenses
It may be that you left this area mostly to your spouse or that you were used to accumulating regular monthly savings after all expenses were paid for, but under your new living arrangements even the presumption of accessible disposable income will need to be reassessed and analysed. It is often the case that due to the reduction of income that comes as a consequence of divorce that certain necessities and wants will need to be curtailed or cut loose if the figures do not add up. Our experience is that this can be a very emotive exercise as future lifestyles can be far less sociable than that of the past – personal entertainment and holidays are usually the first to take a hit.
- Financial Assets
The unwinding or restructuring of the families Investments and Pensions that both parties have accumulated during the marriage up to the point of the divorce are essential steps not to be overlooked and required the insight of a professional financial planner so as to unlock the value that each spouse is entitled to. At Aspire Wealth Management we provide clients with this advice prior to appearing before the Family Law Court. We make sure each client is fully aware of the financial ramifications of any decisions they are about to make and ensure that they fully understand the financial situation of their divorcing spouse to inform those decisions.
The issue of valuing Defined Benefit Pension Arrangements is something that quite often gets overlooked. To fully appreciate the importance of such pensions one needs to understand that the capital sum required to pay a defined benefit pension of, say, €10,000 p.a. is circa €330,000. Thus, any spouse that has such an income entitlement under schemes with an old bank employment contract or a Civil Service, Semi State or HSE pension arrangement may be sitting on an asset that the other separating spouse undervalues.
- Tax Planning Issues
Prioritising Income drawdown in a tax efficient manner from a range of personal assets, use of income tax allowances as well as inheritance tax planning – these are all issues that will need to be discussed and understood in order to take advantage of your entitlements under Irish Law.
A clear-eyed approach
Divorce planning is a complex subject that requires a level of expertise and experience to unlock a fair outcome for all parties involved. Financial planning is integral to each stage of the Divorce process, pre- and post-divorce, and can radically alter the financial outcome of a divorce. At Aspire Wealth Management we have a depth of experience in advising Divorcees and can assist you today to look at your own divorce with a clear set of eyes.
Call Aspire Wealth Management on 01- 8455827 today or schedule a call back or Zoom meeting on us through our website www.aspire-wealth.com to gain clarity at a time when it is needed most and with the professional sensitivity that such a matter deserves.
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