International divorce
Divorce can fundamentally reshape a client's financial position.
Where the couple is internationally mobile, the financial consequences may involve pensions, investments, property, business interests, trusts and retirement assets across several jurisdictions.
The family lawyer and relevant tax advisers should establish the legal and tax position.
Josh Clancey works alongside those professionals where a client needs to understand what the eventual settlement means for cash flow, investments, retirement and longer-term financial security.
The settlement is only the beginning of the financial planning
A divorce settlement may determine who receives:
- property
- cash
- investment accounts
- pensions
- business interests
- share awards
- trust interests
- maintenance or support payments
But once that has been agreed, the client still needs to understand whether the new financial position actually works.
Financial planning can help assess:
- future income
- housing costs
- retirement affordability
- investment risk
- liquidity
- debt
- protection
- pension funding
- beneficiary arrangements
- long-term family commitments
The legal settlement and the financial plan are different pieces of work.
Common planning areas in an international divorce
Pensions
UK pensions, overseas pensions, 401(k)s, IRAs and other retirement accounts may form a material part of the marital balance sheet.
Property
The family home, overseas property and investment property may need to be divided, retained or sold.
Investments
A settlement can leave one spouse with investments that were originally selected for the household rather than for their own risk profile and objectives.
Business interests
A privately owned business or concentrated equity position can make settlement planning significantly more complex.
International assets
Assets held in multiple countries can create additional legal, tax and implementation complexity.
Beneficiary changes
Pension nominations, life assurance and estate-planning arrangements may need to be reviewed after separation or divorce.
Questions to ask when supporting a client through divorce
What assets are actually available to each spouse?
The legal settlement should be translated into a clear personal balance sheet.
What income will continue after divorce?
Salary, maintenance, pensions, rental income and investment income should be reviewed separately.
What will housing cost?
A new property purchase, mortgage or rental arrangement may materially affect long-term affordability.
Which pensions remain with the client?
The value and future income potential of retained pensions should be modelled.
Are there assets in several jurisdictions?
Implementation may require coordination with local lawyers, tax advisers or custodians.
Does the client's existing investment strategy still make sense?
A portfolio designed for the former household may no longer be suitable.
Have beneficiary arrangements been updated?
Pension nominations, insurance and estate documents should be reviewed with the relevant professionals.
Useful resources for advisers working with clients going through divorce
The Professional Adviser's Guide to Cross-Border Financial Planning
A broad guide to coordinating financial decisions where clients have assets and liabilities across more than one jurisdiction.
The Professional Adviser's Guide to UK Pensions for International Clients
A useful resource where UK pension assets form part of a wider settlement or future retirement plan.
Pension and Beneficiary Coordination Checklist
A practical checklist for reviewing pension nominations and related beneficiary arrangements after a major life event.
Cross-Border Beneficiary and Estate Coordination
A technical brief covering the interaction between investments, pensions and beneficiaries across jurisdictions.
Cross-Border Referral Checklist
A practical checklist for identifying where specialist legal, tax or financial-planning input may be required.
Cross-Border Document Checklist
A practical resource for gathering the financial and professional documentation needed to assess a complex international case.
Asset value and financial usefulness are not always the same thing
Two assets can have the same headline value and still have very different implications for the client.
For example, £500,000 of:
- pension assets
- taxable investments
- property equity
- cash
- private-company shares
does not necessarily provide the same liquidity, tax treatment, risk or retirement income.
That is why post-settlement planning should look beyond the gross balance sheet.
The client may need to understand:
- what can be accessed now
- what is locked away
- what is taxable
- what is illiquid
- what produces income
- what carries investment risk
- what will support retirement
A new cash-flow plan can help test whether the settlement is sustainable
Divorce often changes several financial assumptions at the same time.
The client may now have:
- one income instead of two
- separate housing costs
- legal costs
- maintenance obligations
- education costs
- lower pension provision
- different retirement timing
- different investment assets
Cash-flow modelling can help answer practical questions such as:
- Can the client afford to retain the family home?
- How much capital needs to remain accessible?
- Is retirement still affordable at the planned age?
- Does the investment portfolio need to change?
- Is additional pension funding needed?
- How much investment risk is appropriate now?
The purpose is to give the client a realistic picture of what the post-divorce financial plan looks like.
When should the referral happen?
A referral can be useful where the client:
is negotiating or has agreed a financial settlement
has substantial pension assets
owns property in several countries
has business interests or concentrated shares
needs to understand whether they can keep the family home
will receive a large investment portfolio
needs a new retirement plan
has cross-border assets or liabilities
needs beneficiary arrangements reviewed after divorce
Supporting a client through an international divorce?
If the client needs to understand how the financial settlement affects their investments, pensions, property, cash flow and retirement, an initial discussion can help establish where financial planning should sit alongside the family-law and tax advice.