Firstly do you think there is a gender disparity when it comes to finances in divorce?
Dasha: There tends to be a gender disparity in finances even before divorce. I have found that often it is the man in the relationship that looks after the family’s investments, including those in his partner’s name. A common reason I have found for this, is that women feel disenfranchised. After all, the world of finance has stereotypically been a man’s world. Just 16% of advisers in the UK are women – that’s about one in six. Understandably, women may feel more comfortable speaking to a female adviser especially after major life events such as divorce.
In addition, wealth management firms have sometimes fallen prey to stereotypes. When discussing household finances, some advisers assume that the man is the breadwinner or has more of an interest in investing. During a meeting with a couple, sometimes most of the questions are directed at the man. Naturally, this does little to encourage women to be more involved in their own finances.
Maisie: From a family law standpoint, we must always ensure we take all the relevant information from our clients, without making any assumptions or, as Dasha says, falling prey to gender stereotypes. I am pleased to say we regularly see female clients who are the breadwinner (and this is both women who have had children, and those who have not). We have a fairly unique perspective as we see clients from every walk of life.
That being said, certainly historically, women have been the ones more likely to take a step-back in their career in order to care for children. We are well aware of the impact this has on earning capacity. Another key area where we see this disparity is in relation to pensions, where last year it was estimated that the gender gap between women’s pensions and men’s pension was a whopping 40.3%.2
Let’s not forget 42% of marriages end in divorce so it is important that we empower both parties to take control of their finances. Although times are changing and women are now more financially independent, it is regularly women who feel the financial burden due to ill-balanced financial portfolios.
What is the difference between an investment manager & a financial planner and at what point should women consult a financial expert?
Dasha: The financial world is not immune to having job titles that sound confusing!
The two disciplines are very closely related. A financial planner is there to help answer some of the bigger picture questions when it comes to personal finances. These include: When can I afford to retire? How can I financially support my children through their education? How can mitigate inheritance tax?
An investment manager’s job is to select suitable investments for the client. This can be done following the work of a financial planner. For example, the financial planner may have ascertained that you can afford to retire in ten years’ time. An investment manager would then take the timeframe of ten years and pick appropriate investments.
It is worth bearing in mind that investment managers usually offer two broad services. The first is “advisory” where the investment manager puts forward suggestions for the portfolio, but the client remains the ultimate decision maker. The investment manager cannot act on the portfolio without the client’s say so. This is a good option for people who have the interest and (very importantly) the time to manage their own investments.
The other option is a “discretionary” or “managed” service. In this instance, the investment manager gains a good understanding of the client’s circumstances (including objectives and risk profile) and the investment manager then selects investments on the client’s behalf. Those with little time or/and interest in investments tend to go down this route.
Wealth management firms usually have financial planners and investment managers. In some places, the investment managers tend to be the first point of contact. In others, it is the financial planner. Whichever process the firm uses, your point of contact should be good at spotting which financial professional needs to be in the room – so you don’t have to worry whether you are talking to the right person.
With regards to when you should consult a financial expert, usually when you are a net saver or/and when a major life event has occurred such as an inheritance or a divorce.
Personal finances don’t just exist in the realm of financial planners and investment managers. Other key professionals such as solicitors and accountants deal with issues surrounding one’s finances. Strong relationships between these private client professionals help develop a holistic view of a client’s circumstances and ensures that they are supported effectively.
Maisie: Dasha is absolutely right; as family lawyers, we must establish strong professional relationships across all disciplines. We find that our clients who are going through a divorce will often benefit from input from a financial planner and/or investment manager at key stages of the process.
It is therefore imperative that we have someone we can trust to refer our clients to, or even better, to involve in those key discussions. Whilst there is an obvious benefit in referring clients to an investment manager at the end of the case, when our clients have received their settlement, I am of the view that there is a real benefit in introducing clients at a far earlier stage to obtain sophisticated and tailored advice. This advice can then feed into the Form E (and importantly, the preparation of a budget for income needs), and offers of settlement. This side of things may well be more within the realm of a financial planner, although there will of course be an overlap with the kind of work Dasha does, particularly when it comes to considerations of pensions.
Really the key take-away should be the benefit of having a team of professionals (legal and financial), who can work together to ensure their clients achieve the best possible outcome.
How can women be forward thinking when it comes to protecting their wealth? Are pre-nups just for the wealthy?
Dasha: As a first step, I would like to encourage all women to attend meetings with their advisers, even if their male partner has tended to drive the discussion and investment decisions.
Being aware of how much wealth you have, how it is invested (you don’t need to know any complex ratios!) and what objectives have been set, is important. It develops confidence and knowledge. It also means that there is transparency in assets between spouses. My advice would be to take an interest and don’t be afraid to ask questions, however basic you think it is.
Maisie: I agree, one of the key challenges we see when it comes to finances is that couples often have no transparency when it comes to their respective wealth. This can cause huge problems at the breakdown of a relationship. When a relationship ends, this should not be the first time a couple has a frank discussion about finances. This must come far earlier, and one would argue, way before there are discussions about marriage or co-habiting.
Of course, this is not the kind of thing people want to discuss on a first (or second, or third) date, but discussions about finances should be happening as early as possible. Why? Knowledge is power. Aside from anything else, these discussions will reveal a lot about the person you intend to marry/live with/have children with.
In my practice, where I see this coming up is in discussions associated with pre-nuptial agreements. I regularly see clients (both the financially stronger and financially weaker parties) who come to me and tell me they are getting married in, say, 6 months’ time (if I’m lucky) but have never shared any information about their finances.
Let’s talk about pre-nuptial agreements for a minute. There is a misconception that pre-nuptial agreements are just for the wealthy. This could not be further from the truth. It is more and more common for people to marry later in life (and by later life, I mean later than your 20s, which was once the norm). By this stage, people may have properties of their own, they may have investments that they have grown over the years, they may have been married before or have children. Even younger couples will have some wealth that they have built up independently, whether that’s from inheritance or lifetime gifting, or simply from hard work, these are assets and resources that they have acquired before marriage. It is not uncommon or unreasonable for people to want to protect these assets. I have also had clients who want a prenuptial agreement not because they want to ringfence any assets, but simply to agree what the financial division will be on divorce, to avoid any acrimony or uncertainty later.
Where we are talking about protecting wealth, we must not assume that women are always the financial weaker party. There are a number of ways in which women can take control of their finances, in order to protect themselves on a later divorce, namely:
- Pre-nuptial agreements
- Post-nuptial agreements (these come after marriage)
- Trust structures for the benefit of children
Pre- and Post-nuptial agreements are not yet binding in the UK, but more and more frequently, they will be upheld by the courts (provided they meet specific requirements). They provide the best possible chance of successfully ring-fencing wealth, which would otherwise perhaps be subject to the division by the courts.
The benefit of post-nuptial agreements should not be overlooked.
Because they come later (after marriage), in many ways they are easier to understand (there is generally less pressure as one party is not saying the marriage will not go ahead without it). They can also address changes in life that may not have been envisaged prior to marriage (or even changes that may have been envisaged), for example inheritance, ill-health, any hiccups in the relationship generally, or simply just having children.
Having children is one of the main ways in which women will face financial disadvantage (maternity leave means time out work, sometimes working reduced hours, time out of work for general caring duties). Regularly this means that women will be overlooked for promotions or will fall behind their male peers in terms of pay (we are all familiar with stats on gender pay gap). This is something that could be factored into a pre- /post-nuptial agreement from the outset, in terms of both capital provision and also maintenance provision.
All of the above methods of protecting wealth will require input from professionals and women should be empowered to have those discussions to ensure they are doing all they can to protect themselves.
When it comes to emotionally driven decisions, what mistakes can be avoided in divorce proceedings?
Maisie: Whilst I hate to generalise, in financial proceedings, we often find that women (predominantly mothers) will prioritise the family home and will do what they can to retain this. This is not surprising, as instincts will be to provide a stable home for children. There is often a fear of uprooting children, particularly when there has already been lots of change for them simply due to the divorce. This is not wrong, and when my clients say that retaining the home is their priority, that is what I will fight for on their behalf.
However, where the home is the main capital asset, this will often mean taking less (or none) of the other assets. Where we see people miss out most regularly are investments and pensions.
Perhaps this is not surprising: a home is a tangible asset that everybody can understand; it meets immediate housing needs and represents security. On the other hand, investments are less tangible and can be daunting for someone who is not familiar with investment portfolios. They may also carry more risk than bricks and mortar (although the property market can also be unpredictable, as we are seeing now). Investments will often grow over time, and so are less attractive for someone who is concerned about their present needs. However, these can be incredibly valuable, and so serious thought will need to be given to not just the immediate benefit, but also the potential future benefit of, say, shares in a start-up.
Pensions will regularly be an afterthought, but this is a mistake. Pensions will often be one of the most valuable assets on divorce and their value should not be underestimated simply because they have little immediate utility. The older you are, the less likely you will be able to build up a pension of your own that will provide an income in retirement to meet your needs. The state pension is unlikely to be sufficient. Advice should always be taken when contemplating any off set, particularly when this may mean giving up a pension share.
Fortunately, the courts (and family lawyers) are very well equipped at dealing with this complexity and ensuring that there is equity (not simply equality) when it comes to a financial division.
Whilst the starting point is equality, often circumstances dictate a departure and above all, the court will be striving for fairness. Where we see this most commonly is the need for the main carer of children (often the mother) to be housed. Greater importance is given to their housing needs (and those of the children), and in cases where there is not enough to go round, this will often mean the main carer is awarded a larger share of capital.
Equity also plays a role when considering maintenance. Spousal maintenance (or periodical payments) is designed to assist the financially weaker party transition to financial independence. Often, mothers, in particular, will be disadvantaged due to having been out of the workplace for some time. With maintenance it’s not so much about equality, but of giving assistance (potentially just for a specified term), to help them move to become self-supporting.
This is not just relevant when considering mothers. Anything that can impact earning capacity (for example, ill-health, a disability, other caring responsibilities) needs to be given due consideration. There has been a lot of attention in the media recently in respect of the menopause and how this impacts on earning capacity, and we may well see that this is considered further by the judiciary in the future.
In relation to pensions, more and more frequently now, we are seeking equality on pension income when looking at pension sharing, rather than equality of capital. This is an incredibly complex area and so professional advice will always be necessary (for example, the instruction of an actuary).
How can women who are the financially weaker party ensure they are investing in their own case?
Maisie: ‘Equality of Arms’ is another phrase that we see cropping up. It refers to the principle that each party must be afforded with the opportunity to put forward their case, and particularly in a way that does not place them at a considerable disadvantage. Women will often feel disadvantaged when it comes to funding legal representation if they are the financially weaker party, as they may not have resources to pay for lawyers. They may also feel that their spouse has the upper hand in terms of their understanding of their finances. Particularly in complex financial cases, where a disparity in financial astuteness (and even more so, issues of non-disclosure) could place the financial weaker party at a significant disadvantage, it is essential that steps are taken to try and narrow the gap. There are a number of options, and the below are just a few to consider:
- Ask spouse to pay. This is always a good place to start where there is one party who has greater resources. It is often in both parties’ interests for solicitors to be on board, as early advice is the best way to obtain a fair and early settlement.
- Agree to use liquid funds from a joint account or investment to fund both parties’ lawyers.
- Litigation loan. If the parties do not have access to liquid capital, or if the wealthier party refuses to pay, a litigation loan may be an option. This would only be appropriate where there are capital assets which are going to be sold. Interest rates can be high, so this really should be used as a last resort.
- Legal services order. Where one party does have significant resources but refuses to contribute towards the other’s legal fees, an application can be made to the court to compel the financially stronger party to pay. There is a reasonably high hurdle to overcome and, the costs of this are high, and so it is always better for this be agreed.
- Consider firms outside of the Holborn hub. Charge out rates may be cheaper, but representation is still solid. Covid has also provided more flexibility when it comes to engaging solicitors remotely, and so parties could consider looking even further afield.
- Consider more junior lawyers, who work closely with partners – benefit from experience without hefty price tag.
I would always recommend shopping around and speaking to different solicitors. I’m afraid that dealing with finances can be a long process and you will spend many an hour on the phone to your solicitor. You want to know if you are compatible. This is not a decision to make quickly. I’d also ask around and find out if anyone has any specific recommendations. This is another invaluable benefit of having a strong network of professionals who you can ask for advice.
If you are unable to fund full representation for the duration of the case, consider the key stages where professional input is going to have the most value. Take advice on this too, as you will only have one chance to get this right.
If someone is looking for financial advice following a divorce, where should they start?
Dasha: You should start by simply have a conversation with your adviser. If you don’t have one – just speak to a few until you find one that suits you. You need to feel comfortable with the financial professional so don’t hesitate to speak to several to find someone you really feel you can build a relationship with.
Initial meetings tend to be free of charge and it will allow you and the adviser to determine whether a financial planner or an investment manager (or neither!) can help.
An encouraging step in the realm of wealth management is the increasing importance of suitability – the need for advisers to ensure that their recommendations are appropriate. In practice, one of the outcomes has been deeper conversations about clients’ financial situation; their objectives and aspirations, their worries and attitude to risk. Advisers need to have a good understanding of their clients’ circumstances and these are exactly the kind of discussions that female investors say they tend to prefer.
Thank you to both Dasha and Maisie for their time and for sharing their wealth of knowledge with us. If you have any questions in relation to the above please do not hesitate to contact us on 0207 228 0017 or at email@example.com and one of our advisers would be happy to assist.