FINANCIAL PLANNING FOR DIVORCE.

Transcription

1 ADVISER KNOWHOW THE WEEKLY TV PROGRAMME FOR ADVISERS BY ADVISERS FINANCIAL PLANNING FOR DIVORCE. Divorce may not be the most cheery subject, but it s one that many IFAs and their clients will have to deal with. Here, we ask how IFAs can get involved in this line of work, and take a closer look at common resolutions and the ways in which advisers can help their clients to handle the financial implications of a split as cost-effectively as possible. KEY POINTS 1 How do advisers get involved in divorce planning? 2 What are the most common resolutions? 3 How can shared pensions be handled if one or both parties lack lifetime allowance protection?

2 KEY POINTS KEY POINTS FOR THIS WEEK S EPISODE FEATURING SUSAN HILL OF SUSAN HILL FINANCIAL PLANNING. HOW DO ADVISERS GET INVOLVED IN DIVORCE PLANNING? Referrals from lawyers and solicitors Clients actively seeking advice Preparing reports for the courts and cash flow modelling reports to guide a settlement WHAT ARE THE MOST COMMON RESOLUTIONS? Offsetting of income (often from pension) and equity Top/sole earner typically retains pension, whilst other party receives equity - Susan need to advise accordingly Could a solution other than a heavily weighted income/equity split be preferable? HOW CAN SHARED PENSIONS BE HANDLED IF ONE OR BOTH PARTIES LACK LIFETIME ALLOWANCE PROTECTION? Check to see if the top/sole earner has been in a defined benefits scheme, as this may include lifetime allowance protection If one party has lifetime allowance protection, there may be ways to protect more wealth Tax liabilities may be avoidable if the income/ equity split is managed effectively

3 PROGRAMME TRANSCRIPT It s much easier for an adviser to be involved at the beginning of the process so they can help with the financial settlement, but more often than not, a solicitor or lawyer will give a referral to you after they ve made the financial settlement. Susan Hill, Susan Hill Financial Planning Ian Horne, New Model Adviser Hello and welcome to this week s edition of Advisor Know How. In this episode we ll be discussing the tricky topic of financial planning for divorce, it might not be the cheeriest of subject areas, but it is, nonetheless, a very important and relevant one for many people. Joining us in the studio is chartered financial planner, Susan Hill. Susan is an expert in this area and a specialist in providing female focused advice for divorcees, but first let s see what other advisers had to say on the subject. How do you get involved with divorce advice? Mark Penston, Bluesky We were already doing a lot of pension work, pension transfer work. We got a lot of our business from lawyers and we also worked with an actuary and so, when the pension legislation changed, we started getting enquiries from solicitors on what they should do with pension transfer business, pension sharing business and that s how we became involved. Really, just initial enquiries because we were able to respond and do that work, it naturally evolved from there and I think we spotted an opportunity and we developed that opportunity by going out to more. Clive Weir, Albert Goodman I get involved in various areas of dealing with divorce advice, part of my work is dealing as single joint experts of the Courts. So, I prepare reports that are presented to the Courts to look at largely pension s issues, but increasingly producing cash flow modelling reports that look at how we can create a financial settlement. What are the most common resolutions? Mark Penston, Bluesky The starting premise is two couples getting divorced were often asked to do a report to say, How should the pensions be shared to create equal incomes on divorce? So, that s the initial work we do, they call it equality of income on divorce and quite often we re asked, how should that deviate subject to, let s say, the wife getting more of the property value and the husband retaining more of the pension. So, there is this offsetting work that we re often asked to do. Clive Weir, Albert Goodman What has come out from this empirical report from Cardiff University is, that the main way of settling is still what is called offset is that, for example the pensions aren t taken into account and the wife keeps the equity in the house and the husband keeps the pensions. That s not saying it s the right method, but it s the complexity and with the complexity comes the cost and cost is shown as a big issue for the client in having bringing all these different experts to sort this out. Susan, thanks for joining us in the studio today. How do you get involved in financial planning for divorcees? Susan Hill, Susan Hill Financial Planning Well really, there is sort of two ways of getting involved. People either come to you to seek advice when they ve been given a financial settlement or you get involved earlier on when the solicitor gives you a referral. How do you handle referrals from lawyers? It depends at what stage of the divorce process. It s much easier for an adviser to be involved at the beginning of the process so they can help with the financial settlement, but more often than not, a solicitor or lawyer will give a referral to you after they ve made the financial settlement. What information do you need and how do you work out fees for such situations? Fees are straight forward, the solicitor charges their fee, I charge my own fee, there s no subsidising of fees there. What do you find are the most common resolutions to these situations and also, what input can you have as a financial planner? That s quite interesting because the commonest resolution for this is not always, but generally it s the male that has the larger pension fund and they ll say the financial settlement would be

4 PROGRAMME TRANSCRIPT When the pension legislation changed, we started getting enquiries from solicitors on what they should do with pension transfer business, pension sharing business and that s how we became involved.. Mark Penston, Bluesky that they preserve their pension fund and the house, the property, is given to the female or the spouse that hasn t had a large fund. That s the typical resolution or financial settlement. I don t agree with that because what you re really looking for is income, is regular income, a house is a very nice secure place to live, you can live in any house, a house doesn t provide an income, the pensions really valuable because it does provide a regular income. So, I m not in agreement with this, let s preserve the pension and you have the house. I think there s a much better way of doing it and that is where a financial adviser can put a lot into the settlement process if they get involved early enough because if you re doing the financial planning when they ve already agreed this, it s too late, they ve already agreed it, you need to get in early and say, Well actually maybe we should have some pension and maybe we ll sell the house and we ll both split that and we ll move to a smaller house. A final topic to discuss is pension sharing. Now, given that many couples won t have lifetime allowance protection, how do you approach that? Well, it s difficult isn t it because if you re working with a couple where perhaps he s in a defined benefits scheme, which is often the case, he may well have already had lifetime protection, lifetime allowance protection and remember we ve had 1.8 million, 1.5 million million as our lifetime allowance. So, it s quite likely in a large scheme that they ve had protection. If you start moving assets out and taking the pension sharing and moving and taking some of that fund to yourself, if it s over the lifetime allowance, then you re going to lose some of the pension fund because you ll have a tax liability. So, actually do you look at it and say, Well, should we take the tax liability into account when we re looking at the overall pension value or should we allow the spouse who has the lifetime protection to keep the protection on it and keep the value and take other assets? Again, I go back, that asset isn t necessarily a house because you need an income producing asset in there, either free assets in terms of investments, but something that can give you an income. Okay, that s great, that s everything we have time for, thank you for your time Susan. My pleasure, I ve enjoyed it, thank you. You can download this week s cribsheet as well as find out more information about planning for divorce at citywire.co.uk/adviserknowhow or bnymellonam.co.uk/adviserknowhow or you can find the AdviserKnowHow on Twitter. Thanks for watching, see you next week.

5 ADVISER KNOWHOW EPISODE OCTOBER2014 ADVISER KNOWHOW A PROGRAMME FOR ADVISERS BY ADVISERS Produced in association with BNY Mellon, Adviser KnowHow is a new groundbreaking programme, created specifically to help you and your business. Every week we speak directly to your peers in the industry to understand how they have addressed some of the key issues that advisers face every day of their working lives. Get involved and add your views on

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