SHOW ME THE MONEY!
By Interactive Investors
Monday, May 31, 2010.
In any split the first thing you should consider are any jointly owned credit accounts, which could include bank accounts, mortgages, credit cards and loans. With these, as both of you are liable for any debt, if your former partner runs up substantial debt or stops paying the mortgage, you will be liable for it too.
This can mean that, although you may have acted responsibly and paid your share of any debts or repayments, your credit record will be affected too. If this happens you could find it difficult to get credit, which might thwart your plans to start a new life.
Unraveling these joint accounts is fairly straightforward. With joint bank accounts or credit cards, either you or your former partner can ask your bank to cancel the ‘either to sign’ mandate on the account and replace it with a ‘both to sign’ mandate.
By doing this, any cards and regular payments on the account will be cancelled and you will either need to set up new ones on the account, which you may want to do for some direct debits and standing orders on your current account, or you need to set up new individual accounts.
Setting up a new individual account or credit card is fairly straightforward, although you may have to reapply for credit in your own right.
Any joint mortgage you have will also need to be addressed. Depending on how you intend to deal with the property this may mean applying for a mortgage in your own right, perhaps using the equity that has built up in it to buy out your former partner. You may also need to consider selling it if neither or you can afford to buy the other person out or you don’t want to live in the former ‘marital’ home.
You may also want to make changes to your will, especially if it contained references to your former partner. While a divorce will automatically write them out of your will, they may still contest it, which will be expensive and painful for your new family.
Divorce settlements
Whether it’s your CD collection or your pension, it’s never easy deciding who walks away with what when you split up and unless you can do this amicably it is worth getting legal advice.
As it’s impossible to slice everything in half, you will need to work out the value of any assets and debts you have as a couple and then come to an agreement about how they should be divided. For example, if one person takes the home, the other might keep the investments and pension.
Dividing pensions can be particularly problematic, and there are several different ways this can be done. You could earmark a percentage of any future benefits, although this could be lost if your former spouse dies before they receive their pension. For a cleaner break, you could either share the pension so it is split into two separate funds or you could walk away with different assets rather than a right to a future pension.
Arrangements to pay maintenance may also come into the divorce settlements. This could either be to your former spouse, although this will stop if they remarry, or to support children.
The situation is very different if you weren’t married. Then, unless you had children, you will not have a claim over any of your former spouses’ assets. You may be able to argue that you have some right, for instance if you had to give up a career to raise your children, but proving this will often be a costly and difficult process.
Death
The death of a partner causes different financial issues. For starters, you and the executor of their will, will need to work out where they stood financially at the time of death so that any taxes and debts can be paid and everything else can be settled according to the will.
To do this you will need to collect together all their financial paperwork such as share certificates, property deeds, investment details and utility and credit card bills.
You should also check whether there is any life assurance in place. To make a claim the life assurance company will want to see the person’s death certificate. They may also want to see a copy of the grant of representation, which you will receive during probate, and a copy of any trust documentation.
If the policy is written in trust this will speed up the payment. This places it outside the estate so it won’t get caught up in the probate process and could be used to settle any inheritance tax liability.
If you have been left everything or there is no will and everything has automatically passed to you, you may want to take advantage of a deed of variation to alter this.
These can be used at any point in the two years after death to redirect an inheritance you have received. This can be particularly beneficial from an inheritance tax planning perspective.
For example, if you inherit £500,000 from your husband, although there is no inheritance tax to pay as assets pass between spouses tax free, you might want to pass some of this on to your children or grandchildren to reduce your estate’s future inheritance tax liability.
Providing you can afford to, and your husband’s nil rate inheritance tax band (£285,000 in 2006/07) wasn’t used, you could redirect £285,000 without having to pay any inheritance tax. This money can either pass directly to other people or it can be placed in trust. Additionally, by passing on this £285,000, you will reduce your estate’s future tax liability by £114,000.
Although you will need to consider all these different areas when a partner dies, some things will be easier than if you were going through a separation. For example, joint accounts or credit cards will automatically become yours so you won’t need to worry about opening new ones.
Interactive Investors can be found at www.iii.co.uk
