Why your divorcing clients can’t afford NOT to seek financial advice

Getting divorced can be expensive, but cutting certain costs might be a false economy. Find out why your divorcing clients can't afford not to take financial advice.

Going through a divorce can be a stressful and financially uncertain time. Indeed, research published by the Actuarial Post (6 January 2025) shows that on average, almost half (45%) of all divorcees see their incomes shrink by 30% in the year after their divorce.

So, it’s no surprise that your divorcing clients may be eager to watch every penny before, during and after their separation is finalised.

Just last week I had a client question whether she could afford to work with a financial expert during her divorce. My response was, “Can you afford not to?”

Read on to find out why professional financial advice could be a smart investment for your divorcing clients.

The potential costs of NOT seeking financial advice

There are many potential costs and financial adjustments associated with getting divorced.

In addition to legal fees, your divorcing clients may be facing the prospect of running their household on a single income, covering extra childcare costs, and financing a new home.

So, cutting costs wherever possible might seem sensible.

Yet, failing to seek professional financial advice could be a false economy. Without expert guidance, your clients may face the following potential costs:

Valuing assets incorrectly

If your divorcing clients do not obtain a clear picture of how much their shared assets are worth, this could lead to an unfair financial settlement.

Some assets may be relatively simple to value, such as cash held in bank accounts and household furniture.

However, your divorcing clients may need expert help to accurately determine the market value of more complex assets, such as business interests, valuable antiques, and overseas properties.

As an experienced financial expert with an extensive network of professional contacts, I can arrange for an appropriate specialist to help your clients gain clarity on the value of their marital assets. This could be an important step towards reaching a financial settlement that both parties feel satisfied with.

Paying unnecessary tax

Separating assets during a divorce could have various tax implications.

For example, your clients may have to pay Capital Gains Tax (CGT) on assets they sell or dispose of. What’s more, following the increase to some CGT rates, announced in the Autumn Budget last October, your clients’ CGT liabilities may be greater than they expect.

As of 30 October 2024, the rate of CGT payable on most chargeable assets increased from 10 to 18% for basic-rate taxpayers and from 20% to 24% for higher- and additional-rate taxpayers.

A financial expert can help your clients understand and mitigate their tax liabilities (especially when transferring assets), allowing them to retain more of their wealth following divorce.

Losing out on valuable pension benefits

According to research published by PensionsAge (6 January 2025), just 13% of divorcing couples consider pensions and 23% actively waive their pension rights.

Yet pensions are often one of the most valuable assets in a marriage.

Indeed, the analysis revealed that based on an initial pension value of £200,000 at age 40 and retirement at 68, a spouse could forgo a financial asset worth nearly £665,000 if the pension is excluded from the divorce settlement (assuming annual growth of 7% over 28 years).

However, dividing pension pots during a divorce can be complicated.

A financial expert can explain options such as offsetting and pensions sharing orders, so that your clients are able to make informed decisions about their retirement funds.

Making poor budgeting and financial planning decisions

Following divorce, it’s likely that your clients will need to adjust their budget and long-term financial plan in line with their new circumstances.

Doing so without professional insight could lead to overspending or conversely, underspending and unnecessarily compromising their lifestyle or goals due to misguided fears about their financial security.

Indeed, FTAdviser (3 July 2024) has revealed that 23.2 million UK adults have poor financial literacy, which makes them £20,000 worse off compared to those with good financial literacy.

A financial expert can both support and educate your clients to navigate their finances effectively before, during, and after their divorce.

Mismanaging investments

If your clients lack a clear investment strategy or they stick to one that no longer suits their circumstances and goals following their divorce, this could result in lower growth and missed opportunities. As a result, their wealth may not last as long as they need it to.

In contrast, seeking professional advice could enable your divorcing clients to restructure their investment portfolio in line with their new financial situation and attitude to risk. This could allow them to accumulate the wealth they need for themselves and any dependants over the long term.

Accepting an unfavourable settlement

During divorce negotiations, your clients may be presented with several potential financial settlements. Assessing these different options objectively and understanding their potential short- and long-term implications, may not be straightforward.

As such, your clients could risk accepting an unfavourable settlement that jeopardises their financial security if they fail to seek professional advice.

On the other hand, a financial expert can use cashflow modelling to help your clients visualise their future needs and clarify what they want to achieve from their settlement. This could allow them to make an informed decision about which settlement they want to pursue.

Seeking professional financial advice could be a valuable investment for your divorcing clients

As discussed above, some of your divorcing clients may see their income drop and their cost of living increase following their separation. So, protecting their wealth and building long-term financial security is likely to be a pressing concern.

While professional financial advice may feel like an unaffordable expense during divorce, it could be a savvy investment that not only allows your clients to avoid unnecessary costs but also helps them accumulate wealth over the long term.

Research by Unbiased (24 February 2025) has found that individuals who took financial advice between 2001 and 2006 on average increased their assets by nearly £48,000 over 10 years compared to those who took no advice.

The combined benefits of financial advice over 10 years were approximately 2,400% greater than the initial cost of the advice.

Additionally, a report by Vanguard (31 December 2023) has shown that emotional benefits are one of the key sources of value in financial advice. So, working with a financial expert might boost your divorcing clients’ wellbeing as well as helping them take control of their finances.

If your divorcing clients are still unsure about whether to invest in financial advice, Royal London’s ‘The Meaning of Value’ report (November 2024) might provide added reassurance. The findings show that 74% of clients rated their financial adviser at 7 or above out of 10 when it comes to value.

Get in touch

If you have clients who might benefit from financial advice before, during and after their divorce, I can help. Please contact me at lottie@truefinancialdesign.co.uk or call 03300889138.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate tax planning or cashflow planning.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance. 

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.  

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. 

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.