Six things you need to do when you divorce to protect your finances
If you are divorced, it’s important that you update key financial information to protect your financial future. We look at six things you need to do.
When you die, who benefits from your life insurance? Incredibly, according to research by L&G, 10% of divorced people have forgotten to remove their former spouse as the beneficiary of their life insurance policy. So, if a claim was made, their ex would receive the payout.
And that’s not all. L&G’s research also discovered that only 7% of people had discussed life insurance beneficiaries as part of their separation, and just 27% have cancelled a joint life insurance policy they had when they were married. 6% of people waived the right to their joint life insurance policy during the divorce process.
Just 7% of people will consult a financial adviser as part of their divorce, leaving many vulnerable to financial errors which could have long-term consequences. 11% of divorcees, for instance, have either delayed or forgotten to remove their ex-partner from their will, running the risk that their ex could inherit their estate.
Once separated, many divorcees do not prioritise protection insurance with only 4% of people taking out a critical illness policy and just 3% taking out income protection.
Six things you need to do to protect your financial future after a divorce
To avoid common (and potentially expensive) mistakes, here are six things you need to do to protect your financial future after a divorce.
1) Review and update your life insurance policy
Ensure that your life insurance policy reflects your current wishes by removing your former spouse as a beneficiary. This guarantees that your loved ones, such as children or a new partner, will receive the payout, not your ex.
2) Cancel any joint life insurance policies
If you held a joint life insurance policy with your ex, make sure to cancel it as soon as possible. This will prevent any complications in the event of a claim and allow you to reassess your coverage based on your new circumstances.
3) Use financial health check tools
A financial health tool, like the one created by L&G, allows individuals to consider the broader financial implications of a separation. This tool can be a helpful starting point to ensure all aspects of your finances are properly managed.
4) Consult a financial adviser
Professional guidance can significantly reduce the risk of financial errors. A financial adviser can help navigate the implications of divorce, ensuring that life insurance, wills, and other financial matters are properly addressed.
5) Take out new protection insurance
Consider protection policies such as critical illness or income protection if you didn’t have them before. These can provide financial security in the event of unexpected illness or loss of income after a divorce.
6) Consider a clean break order
To formally end any financial ties with your ex, aim for a Clean Break Order. This legal order can help prevent future disputes over shared assets or financial obligations.
Get the right advice – and protect yourself financially
Divorce is always difficult but, without advice, it can be a costly too. It’s really important for anyone going through a separation to be fully aware of the financial implications of divorce and to ensure they review other important elements, like their wills and financial products like life insurance, to ensure beneficiary information is updated.
Advisers can play a key role in supporting clients during a separation, helping them to put a plan in place for the costs associated with a divorce, any shared debts and, potentially, making sure a Clean Break Order is in place. A financial health check tool can also help people consider the wider financial implications of a separation.
Established in 1836, L&G is one of the UK’s leading financial services groups and a major global investor. They are a leading international player in Institutional Retirement, in Retail Savings and Protection, and in both public and private markets through their Asset Management division.
