Take control after divorce
If you’ve recently had to deal with divorce proceedings, or the process is about to take place, we can help you organise your finances and make the best of use of your assets.
We understand that this is a difficult time and that financial considerations can add to the stress. We'll work with you to make sure you feel in control of your new circumstances.
Case study: how we helped Mrs E take control after divorce
We were introduced to Mrs E by her lawyer at the halfway point of her divorce. Mrs E was 50 years old, with two children at university, and the bulk of the E's family wealth had been controlled by her husband, who generated the family’s income.
The E's main pots of wealth were in their £2.5 million house, on which they had a debt of £250,000, and her husband’s pension pot of £1.2 million. They also had an ISA each of £250,000 and an excess of £450,000 in a dealing account, which was managed alongside the Self-Invested Personal Pension (SIPP) and the ISAs.
Mrs E was awarded half of all the assets in the divorce but had little experience of tax or financial planning, so she asked us for guidance to help her generate the income she’d need to maintain her lifestyle.
The divorce proceeds were expected to leave Mrs E with £1.25 million in property, £500,000 from her husband’s pension, £250,000 in an ISA and £225,000 of money invested in a dealing account.
After several meetings with Mrs E we concluded that her income requirement was approximately £4,000 per month or £48,000 per year. This would decrease when the children finished university. After guiding Mrs E through a risk assessment, we determined that she was a medium-risk investor, looking for a steady income from her investments. She was happy and able to accept some risk in order to benefit from any longer-term appreciation of the equities markets.
As she was new to investing, Mrs E initially wanted to keep a small cash float. We made sure she understood that all her investments held in the dealing account were liquid and cash was available at short notice. Her investment portfolio was to be her main income, except for a small but regular contribution from her ex-husband.
Mrs E found a London flat for £850,000, leaving her with £275,000 from the sale of her old home, which could be added to her £225,000 in the dealing account. We set up a new SIPP for Mrs E, funded with the £500,000 from her husband’s SIPP. As time passed, Mrs E eventually had a SIPP of £500,000, an ISA of £250,000, a dealing account of £500,000 and a flat with no debt.
We decided to combine income generation from her dealing account and her tax-free ISA, returning a gross yield of 4.5% or £33,750. We now distribute the income to Mrs E as it accrues. The SIPP was set up on a growth mandate and is essentially viewed as a long-term saving vehicle, with capital appreciation as the main goal. Mrs E has earmarked this as an IHT-free pot for her children.
As Mrs E was new to the investment world we encouraged her to call us when she received her quarterly valuations, so we could run through her portfolio report, which includes useful income estimates and her asset class breakdown. She can see where and how much income is being generated and where the profits are picking up.
Every April, we move funds from her dealing account to the ISA, to increase the proportion of her funds in the ‘tax-free pot’. We are also advising her about potentially drawing down some tax-free money from the SIPP once she turns 55, though she may prefer to hold this back for her old age and the children’s inheritance.
It’s been two years since Mrs E’s divorce and she’s been generating most of her income needs, supplemented by periodic cash withdrawals. Her costs are also falling, as the children have flown the nest. She's improved her financial understanding and still gets a regular call from her Investment Manager whenever there's significant news and when the quarterly valuation reports come out.
Investment involves risk and you may not get back what you invest. It’s not suitable for everyone.
Investment involves risk and is not suitable for everyone.