Perhaps the financial area which requires the most planning when it comes to dealing with separation and divorce, or at least the most head scratching, is where there is a choice of assets – where you can potentially seek a pension share, cash, investments or the family home, or some combination of all of these. This is also an area which demands most liaison between planner and lawyer.
Often the choice of assets is decided long before the planner is involved, but relatively regularly we give input into what we suggest might be best for the client, from a purely financial planning perspective. What you actually end up with, of course, may look nothing like our suggested ‘ideal’, but offering our opinion, and sharing it with your lawyer may be helpful during the negotiations.
Elements that we have considered include the likely tax impact when cash is required from the asset, and the timing of access to cash, for example, with pensions or the share of a private company.
In one case we were involved with there was a choice between a pension share and slice of an investment portfolio. Both the pension and the investment portfolio were dominated by the shares of one company – a very high-risk investment approach, which was acceptable for our client’s ex-spouse, but not for our client. While from a pure tax-perspective the investment portfolio might have allowed the greatest amount of cash to be realised over a period of years, the pension share offered the lowest-tax way to receive an asset not full of shares in the one company. So, on sharing, all the shares held within the pension were sold tax-free and the proceeds transferred to our client’s new pension, allowing the client to invest in a way that was appropriate for them.
In our next blog in this series, we look at what to think about when considering pension sharing.
Richard Wadsworth is a Chartered Financial Planner at Carbon. Contact Richard or get in touch with your local office.
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