Divorce - Financial Considerations and Implications
by: jameswalsh
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Lack of financial knowledge is a major impendent for people seeking a divorce. Money plays an integral role in the divorce process. The very cost of divorce may range anywhere around £8,000 to £30,000. Every family has intermingled finances and separation in the home front is initiated by disentangling joint bank accounts and credit cards. However, the very first step can get mired in bureaucratic hurdles.
Divorcing spouses next plan the division of the marital house. In an effort to make clean break women often forget pension fund which also works out to substantial amounts. Apart from marital home and pension sharing issues, divorce has widespread financial implications. Debts have to be repaid, capital gains tax (CGT) has to be paid, the name of the spouse has to be erased from the insurance beneficiary record, etc.
<b>Management of Capital Gain Tax & Pension Sharing </b>
Upon selling the marital home, the CGT has to be paid. This is the tax that has to be paid on an increase in the asset value. In other words, if the selling price of the marital home is more than its cost price, CGT is levied. This tax has to be paid even if the house is gifted away to someone and no monetary transactions take place. CGT differs according to circumstances and each individual case. Exemptions are also allowed in certain cases. This is a complex issue and seeking professional help is a must.
Law of the UK has allowed pension sharing since December 2000. 30,000 divorces have taken place after the enforcement of the new rules. However, just 1,200 people have benefited by this. Women always prefer to accept a larger share in the marital home in lieu of pension rights, for they are comfortable managing property. They avoid pension sharing as they are either unaware of the new rules or they simply find it too complicated to comprehend. Herein lies the real danger, for the pension amount can be much more than the value of the increased share in marital home. Even pension sharing should not be managed alone. It is the job of the accountant and a solicitor.
<b>Managing Financially</b>
If divorce is being contemplated the non earning spouses should first plan the financial scenario either by seeking help of accountants or handling money matters individually. A worksheet must be prepared. This should comprise of the revenue and expenditure list. Various familial assets, sources of family income figure in one column. While the expenditure side should include regular savings for future retirement, re payment of debts and other miscellaneous spending apart from the monthly maintenance expenditure. If expenditure falls short of income (as is usually the case) the non earning spouse should either seek employment or curtail spending. Seeking employment is a better option for income gives you much more than financial security. It enhances self confidence too.
<b>Divorce and the Financially - Benefiting Spouse</b>
Men benefit financially by the divorce. This fact is proved by their increasing bank balances. The financial benefit they accrue far outstrips any monetary gain brought by job enhancement. Divorced men tend to save more due to lack of expenditure entailed by holidaying, or school fees and also by concentrating on their job prospects and climbing up the career ladder.
Women who tend to retain custodial rights of the children are indirectly prevented from turning completely career oriented. Child expenditure also has a direct bearing on their savings.
In spite of the financial difficulties that divorce may bring about, women are the initiators of the proceedings in majority of the cases in the UK. To prevent financial difficulty turning unmanageable, every person must make it a point to develop their financial skills before divorce. Some financial issues are too complex to be handled independently like the payment of CGT and sharing pension fund. Even if the financial aspects of the divorce are independently handled, a solicitor and financial expert have to be consulted to understand the long term implications of the decision.
About the Author
James Walsh is a freelance writer and copy editor. If you would like more information on how to get a quickie <a href="http://www.quickie-divorce.com">Divorce</a> see http://www.quickie-divorce.com
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