With the forthcoming financial storm with rising inflation and a possible recession, divorcing couples need to be aware of several things when looking ahead.
Speak with a mortgage broker
When you divorce, unless you know how much you can afford to borrow, you will not know whether you will be able to rehouse yourself or how much you will need to put down as a deposit to buy a suitable property. So, get the right advice regarding your borrowing capacity, types of mortgage products, how long the mortgage term will be, and how much you can afford.
Housing needs are a really important consideration and the courts are keen to ensure that each party and especially any dependent children have a roof over their heads and a standard of living that bears some resemblance to the standard of living the couple enjoyed during the marriage. So, it is also important to try to find out how much your ex-spouse will be able to afford to borrow as that will also have a significant impact on how the assets are divided,
Find out how much your house is worth
Get a realistic valuation of your house. Whilst the trend for property prices has been to increase for quite some time, the future is uncertain. Often, what people think their houses are worth, is wrong. Remember that if you are planning to sell, it will only sell for whatever the buyer is prepared to pay. So, you need to have a realistic idea as to the likely value. This is particularly helpful if one person wishes to “buy out” the other’s share of the property.
By understanding the value, you will also be able to work out how much equity there is and how that can be divided to enable each party to rehouse themselves. For this reason, it is usually sensible to instruct a chartered surveyor to carry out an independent valuation.
The impact of inflation
If one party is financially dependent on the other and needs maintenance in the longer term, consider the impact of inflation. If inflation continues at the current rate, it is important to consider making the payments “future proof” by making the payments index-linked – this is usually in line with rises in the RPI/CPI each anniversary of the maintenance order.
Set a monthly budget
When assessing maintenance needs, it is essential to make sure you properly consider a sensible monthly budget to enable reasonable needs to be met and allow for inflation. It is worthwhile bearing in mind that the needs of one party will have to be met from the income of the other party and the impact of inflation on the paying party’s income must also be borne in mind, particularly if his/her income does not increase in line with inflation which places a strain on his/her disposable income.
Get independent financial advice
If maintenance is to be capitalised, it is important to take independent financial advice to work out what this might mean in terms of future sustainable income. If a lump sum is properly invested consider that investments can be volatile – stock markets can fall as well as rise.
Don’t forget your pensions
The same principle applies to pensions. They should be valued but it should also be borne in mind that money that purchases pensions (in the same way as other investments) can fall in value as well as rise. If those pensions are to be shared, it is essential to take the independent advice of an actuary to calculate what incomes can theoretically be generated by the pensions upon retirement.
If you’d like any further advice on divorcing during the economic downturn, contact us on 0191 500 0777.