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Could divorce issues provide a guide to marital finances?

As lockdowns were imposed, couples were forced to spend considerable time together and, as a result, divorce rates around the world are rising. But even if you are still happily married ever after, could some of the decisions divorce requires be good for you too?
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Published 22 July
6 mins

Starting from Wuhan in China where the first lockdown from COVID-19 was enforced, divorces are on the rise in countries around the world, and in the UK. While the latter’s official statistics aren’t available as yet, anecdotal evidence reinforces this. For example, Stewarts – the UK’s largest litigation-only law firm – reported a 122% increase in divorce enquiries between September and December 2020.

And the figures are understandable given we’re coming out of a pandemic during which people were required to live and work together for multiple months, as well as, perhaps, having to shoulder the responsibilities for home schooling and/or caring for elderly relatives.

On the flip side, however, many have found that their spousal/partner relationships have strengthened over the same period. Money-wise, this bodes well, not least as marriage (and civil partnership) can offer significant financial advantages.

Get it right and you could double your income without doubling your expenses. In aligning your financial goals with your spouse/partner, therefore, you could achieve more of them, more quickly, than would have been possible on your own. In addition, the chance to talk through your wealth goals with someone who knows you really well may inform a different – and perhaps easier – view on what constitutes ‘success’, rather than thinking things through by yourself.

But the issue remains that many married couples don’t have enough conversations about money. It’s also often cited as a reason for many marital difficulties – small wonder perhaps why many won’t raise the subject in the first place.

On a recent journey to London from my lockdown in Lincolnshire, I was intrigued by a Radio 4 programme on how decisions typically only made during a divorce could help married couples too.

Being interviewed was Jeannie Suk Gersen, a Harvard family law professor who believes that her young students, who have had to learn about divorce, unconsciously start thinking about how their own married lives might pan out. After learning about the division of assets, child custody and who supports who financially – all practical things that have to be solved during divorce – her students, following graduation and weddings, regularly contact their old professor to flag how they had also used the knowledge from her course to future proof their marriages. And although US law differs in a lot of respects to the laws across the four home nations in the UK, she believes there are parallels for any jurisdiction and that these thoughts ultimately lead to ‘better’ marriages.

So what lessons can the divorce process ‘teach’ those living in England about the tacit rules of marriage, without us having to actually go through what is an emotional process? Suk Gersen focuses on three topics:

1. Marriage should be a fair exchange

Suk Gersen actually uses the word sacrifice. And while it’s a loaded term, the concept is that couples should regularly acknowledge what they’re getting and giving. And while it is inherently difficult to codify many aspects of life into a system of points, many try to place a financial value on them in divorce.

This is something we too have heard brought up in divorce discussions. For example, in the case of Work v Gray [2017], a US banker (Work) was ordered to pay his ex-wife (Gray) half of the family’s £140 million assets, after the court of appeal rejected his claim that he had made an “exceptional contribution” to the marriage. Instead, the appeal judges agreed with the original court decision that it “was a marriage of two strong and equal partners over 20 years. They each contributed in a range of differing, but all of them important, ways to a marriage and relationship…”

Although Work’s argument would have fared better in many courts around the world, in England judges do not tend to favour either the breadwinner or homemaker and very few cases will not see an order for a 50/50 split of combined fortunes.

In our own marriages, therefore, while one person’s salary may be higher than another, this does not make them more important. Instead, we should openly recognise and voice acknowledgement of each of the couple’s contributions – financial or otherwise.

2. There is no such thing as free child care

Although the expense of paid child care is one that a couple might discuss, few calculate the cost of a family member staying at home to do the same job. But it’s argued that we should and especially if it entails one parent adopting the responsibilities full time.

After all, any substantial time spent away from work impacts careers, even after the individual returns. Not only might they rejoin the workforce at a lower salary level than they left – and especially if more time was taken than the average parental leave – but the new colleagues (and managers) may question whether skills have remained up to date. Meanwhile, when any hurdles are thrown up by having both parents working, and since someone will need to leave work at some point due to an emergency, it is more often the person who previously stepped back that finds themselves responding to any family crises in the future too.

While acknowledgement of the ‘sacrifice’ of child care would go a long way to assuaging any thoughts by the carer that they are being taken for granted, other practical steps can be taken too. These can include paying into a non-working spouse’s pension and/or investing in ISAs in their name every year. This not only ensures that the care giver feels valued, but also that the couple might be able to use more of both individuals’ tax allowances, exemptions and reliefs to further the joint finances.

3. What’s yours probably becomes ours

For those that have brought substantial wealth to a marriage, or receive a substantial sum from their family, these often become part of a divorce settlement.

And although it is possible to ring-fence these for the marriage itself, for example though the establishment of a prenup(tial) agreement, English courts will take these assets into account if they are deemed necessary to ensure the financial settlement supports both parties’ circumstances and needs (plus any children’s).

Even if the assets are still technically ring fenced – e.g. only one person has access to the account in which they’re held – they may still be included in any calculations families make when trying to understand the sum total of their wealth.

This means that over time, and particularly if the marriage is decades long, the marital and non-marital assets often become ‘mingled’ to the extent that they are no longer distinct in the eyes of the law.

This is important to note, and particularly if there are second families in the picture. If you do wish to keep money separate, for example passing down an inheritance from your (grand)parents to the next generation, it might be better to gift money sooner and avoid later difficulties.

Although it is all too easy to dismiss Suk Gersen’s advice, or believe that bringing up the spectre of divorce might even encourage the beginning of the end to a marriage, the three areas of advice seem to me to reflect the right approach to marital life. After all, who doesn’t want to feel valued? We all want to have our efforts (big and small) recognised and feel that we are an equal partner, even if we don’t have the big job title or are always the first in line when household chores need completing. And often all that needs is a conversation or two.

Clients of Nedbank Private Wealth can get in touch with their private banker directly to understand how wealth planning can help them achieve their financial goals and objectives, or call +44 (0)1624 645000 to speak to our client services team.

 

If you would like to find out more about how we can help you with wealth planning support, please contact us on the same number as above, or complete the contact us form using the link below.

Any examples of investments and structures used are for illustrative purposes only. This article does not constitute an invitation or inducement to buy any financial investment or service. None of the content constitutes advice or a personal recommendation. Individuals should seek professional advice, based on their jurisdiction and personal circumstances, before making any financial decision.

about the author

Karen Bennett

Karen Bennett

Karen joined Nedbank Private Wealth in 2019 and is based out of the London office. She brings to the table over 22 years’ experience in financial services in Asia, Europe and the UK, primarily in investment and wealth management.

 

Karen works with the private banking teams to identify trends in wealth management and develop initiatives to help private clients understand the opportunities for their wealth, as well as the hurdles. She also works with the company’s network of finance, fiduciary and advisory professional partners to introduce our services and ensure Nedbank Private Wealth is seen as the provider of choice for high net worth individuals and their advisers.

 

Outside of work, Karen is on the management board of Women in Banking & Finance UK, an ambassador for Insuring Women's Futures and a member of the board of trustees for International Children's Trust. Karen holds a business degree earned in Germany and the UK.

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