Divorce money changes

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January is “divorce month,” according to the marketing departments of family law firms, with New Year’s breakups typically marked by spouses’ Christmas break-ups.

Is this true? I had a press release saying March was the “peak divorce” month based on their analysis of 20 years of court data. Regardless, the announcement that Hollywood superstars Brad Pitt and Angelina Jolie have finalized their separation after eight years of legal wrangling has confirmed the divorce, making headlines in the New Year.

Regardless of the appeal, divorce can have an emotional and financial cost – if not more. Since 2016, Jolie and Pitt have been horrified to think about the legal fees they’ve been getting, so when a 50-something couple I’m friends with politely announce in a pub that they’re planning to divorce over money, I’m excited. .

For the sake of anonymity and in the spirit of the movies, I’ll call them Mr. and Mrs. Smith. Mark is a well paid pensioner with over £1mn. Meanwhile, Kirsty has a bit of a crumb in her retirement, having quit her finance job to raise their two children.

The chancellor moved to retire on a surprise budget day Subject to inheritance tax It also makes it a tax-planning tool for wealthy families after death, leaving them vulnerable. In the future, withdrawing the money or giving an early inheritance to your children will be more tax efficient.

However, retirements from the tax-free lump sum (typically 25 per cent) attract income tax, hurting couples like the Smiths who have one pension between them. So their crazy plan to use a pension sharing order to force a divorce and split the pot between them allows Kirsty to cash out at a very low tax rate.

Mark claims that if their second home at the seaside becomes Kirsty’s main residence, they will be able to avoid 200 per cent of the newly imposed council tax. Once he retires, he sells it in London; The couple will move back together and remarry to capture the inheritance tax benefits between spouses. So what did I think of their plan?

Ignoring the questionable ethics, I wondered if the violence and legal costs would justify the savings. When Kirsty announces that she will only go ahead if she can spend big on a big second wedding, their illusionary tax avoidance plan is truly shattered.

But our pub conversations show just how important your marital status is in the world of financial planning. It makes more sense for millions of British couples to live together than divorce because of money to marry.

Planned retirement and IHT changes Making marriages and civil partnerships more attractive as assets can be transferred tax-free between spouses on first death. This avoids potentially life-changing tax bills if one of you dies.

Lisa Kaplan, chartered financial planner at Charles Stanley, says that as tax allowances are reduced, it will be more important for married couples or civil partners to maximize both their Isa and allowances on savings, dividends and capital gains tax.

If Mark were to pay £20,000 a year into Kirsty’s stocks and shares Isa, this would give the Smiths more tax savings on their future pension costs.

After Budget, Gift money Tax planning has become a very important feature. Yet despite the strength of their own marriages, wealthy couples who make large gifts often resent their adult children. Counselors have noted an increase in the need to use trusts to protect gifts for children when adults divorce, and also by Cohabitation agreements If a partner moves in, it prevents them from making any future claims to the property.

Prenuptial agreements don’t sound romantic, but they are It is becoming more common. This allows couples to decide what’s mine (and yours) before they get married when they later split up. Law Commission He advised now. – Again – they must be legally binding.

Mom and Dad aren’t the only ones who insist on these. The trend of marrying later in life means that many couples build assets that they want to keep independently. Lawyers tell me that pre-marriages are very common even in second marriages; Spouses often want their share of property to pass to their own children.

Of course, all of these relationship insurance policies have high legal costs associated with them. If I were still a law firm writing a January divorce press release, I would be concerned that they would be small compared to the value of the assets at issue.

Claire Barrett is the FT’s consumer editor and author of ‘What they don’t teach you about money‘ . claire.barrett@ft.com Instagram @Claerb