Financial Advice and Support
There are perhaps surprisingly a great number of potential financial issues to be aware of for stepfamilies - as if life isn’t complicated enough! Naturally it will depend where you are in the Divorce/Separation/Step Parenting cycle but the following articles discusses a few of the key issues that you should aware of.
Do you know the difference between maintenance and child maintenance?
What will happen to your maintenance payments if you find a new partner? Will you still need to continue maintenance payments if your ex finds a new partner?
What are the rules about pensions?
Read on for more info.........
For most of us either paying or receiving maintenance will impact our lifestyle. Maintenance payments are different to Child Maintenance and are usually specified separately. Many factors determine who pays or receives what amount but whether you are the payer or receiver you need to at least have considered the following implications. What will happen to payments to or from your ex in the event of premature death? What would happen to payments in the event of serious illness, accident or disability? What impact would redundancy have on any payments?
Individual circumstances will vary enormously and many of these issues may be already taken care of via work related benefits. However where would you stand if your ex spouse has remarried, would their new partner/spouse get all and any benefits? At what stage would any payments you make or receive stop? Are they linked to you or your ex co-habiting with another partner or just on re-marriage? If, so how is co-habiting defined? Steps can be taken to protect against most sudden changes in circumstances. There is never one size fits all as a solution and it need not be expensive. Even if your ex has not taken any steps themselves there are still things you can do to protect your position.
Payments may (in certain circumstances) continue until the end of further education. If your children are very young this could be for as long as 22 years. You need to be clear as to how the ending of these payments is defined because it could have a serious impact on your monthly income and the ability of any Children to go to University. As a thought for example where would you stand if the wording “continuous” further education was used and they take a gap year, would all payments stop?
As with “maintenance payments” you need to consider the financial implications to you of premature death, illness, disability etc: of an ex, on the money you receive for your children. When you consider that payments to you are effectively tax paid you may have to suddenly try to replace a significant portion of your net monthly income. Do you have the earning potential/ability to do so at short notice and what would the impact on the Children be?
Historically the typical male has built up a more significant pension pot (although times are changing) largely due to career breaks and in some cases of course gender bias. Specialist Pension advice is not always sought on Divorce and often Pension benefits are just split down the middle when overall calculations are made. This may perhaps be appropriate in some cases but it does not always result in a fair distribution of pension income at retirement. There are of course many factors to take into account such as age, health, type of pension etc: that all have an impact. Women do however traditionally live longer than men and are often a few years (average of 3) younger than their husbands. Annuity rates (the amount of pension income you can exchange a lump sum from your pension for) are higher for men because their life expectancy is shorter (average of 4 years). A combination of these factors does mean that the resultant pension income for a woman based on the same lump sum (and assuming annuity purchase at the same time) can be substantially lower. When this is factored into the equation the proportional pension splits that should be made on a fair and equitable basis can change significantly. Among many other Pension factors to consider are, where the funds are invested, who has day to day control of them and do they suit your attitude to investment risk?
This is an area that many people do not think about in any depth. If, (as is often quoted) 80% of our buying decisions are based on emotion it is no wonder that in the excitement of a new relationship money matters are pushed to the back of our minds. It does not make you money grabbing or nosey to try to understand your new partners financial situation before making firm commitments to move in together. It also doesn’t mean that you have to fully integrate your finances either. If, you have Children though, you do owe it to them to be wary and have a full understanding of what you are taking on before you commit yourself.
Firstly, if you are cohabiting with a new partner you may lose your maintenance (not Child Maintenance) instantly this happens, you should check through the wording in your divorce papers and/or speakto your solicitor for clarification. Can you afford to lose this and if not will your new partner be contributing enough to compensate for this loss? Are you comfortable enough with your new partner to take the risk that if you subsequently break up you will be in an even worse financial position?
Secondly, does your new partner have any debts and what sort of lifestyle do they lead? If, they are a spender and you a saver can you agree some middle ground or will it be a problem in the long term?
Thirdly, can you ring fence/protect any assets for the children so any new partner does not take advantage of your situation?
Fourthly, at what stage will you, if ever, merge finances?
There are naturally a myriad of other considerations to be taken into account but the purpose of this information is merely to get you asking questions and thinking about various outcomes.
The most important thing is to consider the various scenarios and implications and then make an informed decision about whether or not to take any action.
Should you wish to know more about any of these areas we do have an association with a fellow Step Parent, Gavin Tisshaw who is a Chartered Financial Planner and also one of only a few “Resolution” qualified Pension and Divorce specialists. If you mention “Happy Steps” you qualify for an initial (and of course confidential) discussion at his expense. Gavin can be contacted as follows: Office 01628 532320 Mobile 07768 773232 Email: firstname.lastname@example.org