Winston Solicitors’ divorce advice on breaking up without breaking the bank

From pensions to property, making the right decisions early can prepare for safeguarding family wealth. Especially when some steps in the process are time sensitive.

Maximising Financial Security – Why Timing Matters

One often-overlooked aspect of financial planning in divorce is ensuring a complete National Insurance (NI) contribution record. Gaps in contributions can significantly impact state pension entitlement, particularly for those who may have taken time out of paid work due to childcare, caring responsibilities, or assisting in a family business without formal employment status.

Maximising NI Credits

The current deadline for many wishing to catch up on NI contributions for gaps between 2006 and 2016 is April 2025. Missing this deadline could mean losing the opportunity to boost your state pension. Gaps in contributions can significantly affect the amount that someone will receive on retirement. This is especially relevant for spouses in farming families, where one partner may have worked unpaid on the farm or in a diversified business, such as holiday lets, without accruing NI contributions.

If you’re in the process of divorcing, checking your NI record via HMRC’s website should be a priority. If gaps exist, voluntary contributions could be made before the deadline. You should, of course, take financial advice as well to ensure that this is in your best interests.

Child Benefits

It’s also worth considering whether a claim for Child Benefit might be possible if the family is not already claiming.

Changes to child benefit thresholds were introduced in April 2024, meaning that the high-income child benefit charge now only applies if either parent earns over £60,000 and the benefit tapers up to an earnings limit of £80,000.

When couples separate, if one party was not earning but not claiming Child Benefit due to previous limits, they could start claiming on separation. Making a current claim for Child Benefit for a child up to age 12 will ensure that the claiming party will receive National Insurance credits, even if employment arrangements change due to the circumstances of the divorce. If the family is already claiming child benefit, switching the claim to the lower earning spouse can potentially help secure National Insurance credits towards their state pension to ensure that, at retirement, their state pension is maximised. In some circumstances it is possible that National Insurance credits received from claiming child benefit can be transferred between spouses.

Pension Splitting – Don’t Overlook Your Future

A significant concern for most people, during divorce, is what their income will be after the divorce is finalised. It’s understandable that people want to know how their living costs will be met. The division of assets during divorce is decided against a background of fairness, taking into account income, needs, and other factors such as contributions during the relationship, whether financial or non-financial.

While property and savings tend to take centre stage in financial negotiations, pension assets are just as crucial, if not more so. Understanding how to fairly divide pension pots can avoid additional financial struggles later in life.

The most common ways for sharing pensions are:

Pension sharing order – This legally divides a pension so that one spouse receives a percentage of the other’s pension pot in their own right.

Pension offsetting – One spouse retains the pension while the other receives an equivalent value in other assets, such as property or cash.

Negotiating the right outcome and considering the relevant options for the overall settlement requires careful consideration and professional advice. Comparing different asset types, such as property versus pensions, can be complex, and assumptions about their future value may not always be accurate. Taking legal and financial advice is key before agreeing to any ‘offsetting’ arrangement.

Tax Matters – Keeping More in the Family

Dividing assets fairly also includes minimising unnecessary tax liabilities where possible to keep the overall pot intact for the benefit of the whole family. Changes to capital gains tax (CGT) rules have eased the transfer of assets between spouses during divorce, but CGT still applies if assets need to be sold.

To reduce tax exposure, consider the timing and method of asset division carefully. For example, selling assets in a tax-efficient way can help maximise allowances. Structuring spousal support or lump-sum settlements strategically can minimise tax burdens for both parties. Seeking expert advice from your lawyers, financial planners and tax specialists can also ensure the best possible outcome.

What Happens If You Can’t Agree?

If divorcing couples cannot reach a fair agreement on asset division, the courts may need to step in. A judge will make decisions based on fairness, considering factors such as income and earning capacity and the financial needs of the individuals.

For those who own businesses, land, or farming assets, a court-imposed division may not always be the most effective solution. A more innovative approach, such as restructuring business assets or exploring tax-efficient settlements, can often achieve a better outcome. Leeds-based law firm, Winston Solicitors, works closely with accountants, financial planners, land agents, and other experts to tailor financial settlements that protect long-term wealth.

Get the Right Advice Early

Divorce doesn’t just mean dividing assets - it means securing your financial future. Ensuring full pension entitlement, understanding tax implications, and structuring settlements wisely can make a significant difference in long-term financial stability.

If you are considering divorce, seeking expert legal and financial advice as early as possible is essential. At Winston Solicitors, we specialise in helping clients navigate these complex financial waters, ensuring they achieve a fair and financially secure settlement.

For professional advice on asset division including pensions in divorce, contact the family team at Winston Solicitors today.