Financial planning through the six stages of divorce and separation
Having advised clients through divorce and separation for many years, and having navigated my own, I understand first-hand the difficulties of financial separation, and the profound relief when it is finally resolved and a new chapter can begin. Things do get better, just have faith. In the meantime, there are key considerations at each stage of the process.
The moment everything changes
Divorce rarely arrives as a calm and considered decision. Even when separation has been anticipated, the moment it becomes real can feel destabilising in a way that is hard to prepare for.
For many of my clients, the emotional weight arrives first – the grief, the uncertainty, the sense that the life they had planned has fundamentally shifted. It is only later, sometimes weeks or months on, that the full financial picture begins to come into focus.
That delay can be costly. The decisions made in the early stages of a separation – often under emotional strain, and sometimes without full information – can have consequences that last for years.
My role is to be alongside clients from as early as possible to ensure that the financial dimension is understood and that no important decision is made in the dark.
What you may not know about your own finances
One of the most common things I encounter when working with clients going through divorce is a gap between what they know and what they need to know.
In many households, one partner has historically managed the financial administration: the tax returns, the investment accounts, the pension arrangements, the business interests. For the other partner, separation is often the first time they have had to engage with the detail of their joint financial life.
This is simply how many partnerships work. But it does mean that the first task is often one of financial education and discovery. Understanding what you own, how it is structured, what tax sits around it, and what your rights are in relation to it is the foundation on which everything else is built.
That process should begin as early as possible. The sooner a full picture of the marital estate is established, the better placed both parties are to negotiate a fair settlement and the less likely it is that assets are overlooked, undervalued, or disposed of in a way that is difficult to reverse.
The family home and other jointly held assets
For most people, the family home is the largest single asset in a marriage, and often the most emotionally charged.
For most people, the family home is the largest single asset in a marriage, and often the most emotionally charged. Decisions about the property can feel personal in a way that an investment portfolio does not. That emotional weight can sometimes lead to less-than-ideal choices: for example, retaining a property that is unaffordable on a single income, or agreeing to a transfer without fully considering the tax consequences.
Capital gains tax, stamp duty land tax and the treatment of the main residence exemption all need careful consideration when the family home is part of a settlement. The position is not always straightforward, particularly where the property has been let, where there is a second home, or where the timing of transfers crosses tax year boundaries.
Beyond the family home, jointly held assets: investment portfolios, business interests, pension rights, overseas property, each carry their own tax profile. The goal is not simply to divide what exists, but to do so in a way that is tax-efficient for both parties and takes account of each person’s future financial position.
Business interests and share valuations require particular care. Where one or both parties holds a stake in a private company, arriving at a fair value requires expertise, and the tax implications of different transfer structures can be significant.
The financial realities of living separately
Separation changes income flows in ways that are sometimes obvious and sometimes surprising.
Two households are more expensive to run than one. Tax allowances that applied as a couple may no longer be available. Income that was previously split between spouses may now fall entirely on one person’s tax return and therefore possibly at higher tax rates.
Pension entitlements deserve particular attention. Pensions are often the second largest asset in a marriage, but they are frequently underweighted in settlement negotiations because they are less tangible than property, and partly because their value is harder to assess. A pension sharing order or earmarking arrangement can have a significant effect on both parties’ long-term financial security, and the tax treatment of pension assets in a settlement is a specialist area.
For clients with international connections, the picture is more complex still. Holding assets in another country, with differing tax regimes and varying disclosure requirements can create unexpected liabilities if not properly coordinated.
Through BKL’s membership of the DFK global network and our personal networks, we provide joined-up advice across jurisdictions, ensuring that what is agreed in one country does not create an unintended consequence in another.
Estate planning and the window after divorce
There is a period during divorce proceedings where significant changes in estate planning need careful timing.
Transfers between spouses remain exempt from inheritance tax until the divorce is finalised, and once the final order (previously the decree absolute) is issued, that exemption falls away immediately.
Wills that were made during the marriage may no longer reflect your wishes or, in some cases, may no longer be legally effective.
This is a moment to review everything: your will, any trust arrangements, pension beneficiary nominations, life assurance, and powers of attorney. It is also an opportunity to think about how you want to pass wealth to the next generation and to put in place structures that reflect your life as it is now, rather than as it was.
For internationally mobile clients, this review is particularly important. The UK’s move towards a residence-based inheritance tax regime means that domicile and residency planning is more critical than ever, and the interaction between divorce, changed domicile status and inheritance tax exposure can be complex.
Moving onto a new chapter
Divorce is one of the most significant financial events in a person’s life. But it is also a reset: an opportunity to take stock, understand your financial position clearly and to build a structure that is designed around your life and your objectives.
Once the immediate pressures of the settlement have passed, the focus can shift to the longer term: rebuilding savings, reviewing investment strategy, considering the most efficient way to hold assets, making use of available allowances, and planning for retirement on your own terms.
There is also often scope to consider tax planning that was not available or straightforward within the marriage.
My experience of working with clients through this process has taught me that the ones who emerge in the strongest position are those who took advice early, who understood what they owned and what it was worth, and who made decisions based on information rather than pressure or emotions.
The financial consequences of divorce are real and lasting, but with the right support, so are the opportunities that come after.
How I can help
I work alongside family lawyers and, where required, international specialists and financial advisers to provide tax and financial advice that is tailored to each client’s circumstances. I bring both professional expertise and a genuine understanding of the human experience of divorce.
My aim is that every client I work with feels informed, supported and confident in the decisions they are making.
If you are at the beginning of this process or already some way into it and would like a confidential conversation, I would be very glad to hear from you.
Contact Sehjal
Frequently Asked Questions: Divorce and Separation
When should I seek financial advice during a divorce?
Early advice is important to help you understand tax consequences, structure settlements efficiently, and avoid unnecessary liabilities later in the process. Involving tax and financial advisers alongside your legal team from the outset can help you make more informed decisions throughout the process.
Can assets be transferred before the divorce is finalised?
In some circumstances, assets can be transferred before a divorce is legally finalised. However, the timing of transfers can affect the availability of tax reliefs and exemptions. Taking advice before any transfer takes place can help avoid unintended tax consequences.
Do I pay tax when transferring assets to my spouse or civil partner?
Transfers can often be made without immediate Capital Gains Tax if they take place within specific time limits or as part of a formal divorce agreement. Outside of these circumstances, transfers may be treated as taking place at market value, potentially triggering tax.
What happens to the family home during a divorce from a tax perspective?
The family home is often one of the most significant assets in a divorce settlement. Depending on how and when ownership is transferred, there may be Capital Gains Tax considerations, particularly if one party has moved out before the transfer takes place. Understanding the timing and structure of any transfer can help preserve available tax reliefs and avoid unexpected liabilities.
Do I pay tax when transferring assets to my spouse or civil partner?
Transfers can often be made without immediate Capital Gains Tax if they take place within specific time limits or as part of a formal divorce agreement. Outside of these circumstances, transfers may be treated as taking place at market value, potentially triggering tax.
Will I pay Stamp Duty Land Tax when transferring property?
Transfers of property between spouses as part of a divorce or formal separation agreement are generally exempt from SDLT, provided the correct documentation and structure are in place.
How are business interests or company shares treated in a divorce?
Business assets can be more complex to divide than cash or property. Factors such as valuation, ownership structure, shareholder agreements and future tax implications may all need to be considered. Professional advice can help ensure decisions are made with a clear understanding of both value and tax exposure.
Are pensions taken into account during a divorce settlement?
Yes. Pensions are frequently among the largest assets considered during divorce proceedings. Different options, such as pension sharing or offsetting against other assets can have very different long-term financial outcomes. It is important to understand the value of pension benefits alongside the wider settlement.
What happens to tax on income after assets are divided?
Once ownership changes, the recipient becomes responsible for declaring and paying tax on any income generated by those assets going forward.
How does divorce affect inheritance tax (IHT)?
While still legally married, transfers between spouses are generally exempt from inheritance tax. After divorce, those exemptions no longer apply, and transfers may fall within standard IHT rules.
What if we have assets or connections overseas?
International cases can involve additional tax implications in multiple jurisdictions, including potential double taxation and additional reporting obligations, which requires coordinated advice.
Do I need professional valuations for assets during a divorce?
Accurate valuations are often essential when dividing property, businesses, investments or other significant assets. A valuation provides a clearer picture of the true economic value of an asset and can help support fair negotiations and informed decision-making throughout the settlement process.
