Finances if we split

[makingitalladdup]

NC for this. I suspect H and I will separate at fairly soon and get divorced when the new no fault laws come in. However finance is a big factor holding me back. I am not sure how we will make it work. I know we will need a lawyer and/or mediation, but in the meantime could I get some views on the financial situation, if only to help give me the confidence that it will be ok? We have 2 DC 14 and 10.

We probably have somewhere between £350-400k equity in our house.

H has a public sector final salary pension which he can get from 55 (10 years time) but will probably work to 60 if he can (has to pass fitness tests) to get a better pay out. His most recent pension statement said his maximum lump is either £110k or £125k and annual income (assuming he takes max lump sum) of £18.4k or £24k, depending on whether he works the extra 5 years. The pension statement says the ‘value of crystallised benefit’ is about £385k. I’m aware you need a special pension calculation for divorce purposes, so this is just to give an indication.

I am self-employed and pay myself about £3200 a month net. I have a very, very small pension pot (currently £15k) that I pay into through my limited company. I could and probably will increase the amount I pay into this.

H has roughly the same net income and still has at least one and probably 2 promotions in him before he retires which will improve his pension final lump sum and annual income.

Where we live a 3-bed house is at the very, very least £400k - realistically £450-550k. Rent on a 3-bed is at least £1300 a month, and probably more like £1500-£1700. I am not willing to move away due to DC and having family locally.

At mid-40s I am too old for a 25 year mortgage I think? So I’m looking at a 15-20 year repayment period to ensure I’m mortgage free by retirement.

Even if I got all the equity in ‘exchange’ for H’s pension I’d still need to borrow at least £100k and probably more like £150k to buy a house. So that’s at least £1000 a month mortgage. If I didn’t get all the equity, as clearly H needs to be able get somewhere to live, big enough for DC, I would need to borrow even more money – which seems unlikely to be possible/affordable.

Sorry, this is very long! I am not sure what the point of all this is, other than to set it all out and see if anyone has any thoughts.

@makingitalladdup

NC for this. I suspect H and I will separate at fairly soon and get divorced when the new no fault laws come in. However finance is a big factor holding me back. I am not sure how we will make it work. I know we will need a lawyer and/or mediation, but in the meantime could I get some views on the financial situation, if only to help give me the confidence that it will be ok? We have 2 DC 14 and 10.

We probably have somewhere between £350-400k equity in our house.

H has a public sector final salary pension which he can get from 55 (10 years time) but will probably work to 60 if he can (has to pass fitness tests) to get a better pay out. His most recent pension statement said his maximum lump is either £110k or £125k and annual income (assuming he takes max lump sum) of £18.4k or £24k, depending on whether he works the extra 5 years. The pension statement says the ‘value of crystallised benefit’ is about £385k. I’m aware you need a special pension calculation for divorce purposes, so this is just to give an indication.

I am self-employed and pay myself about £3200 a month net. I have a very, very small pension pot (currently £15k) that I pay into through my limited company. I could and probably will increase the amount I pay into this.

H has roughly the same net income and still has at least one and probably 2 promotions in him before he retires which will improve his pension final lump sum and annual income.

Where we live a 3-bed house is at the very, very least £400k - realistically £450-550k. Rent on a 3-bed is at least £1300 a month, and probably more like £1500-£1700. I am not willing to move away due to DC and having family locally.

At mid-40s I am too old for a 25 year mortgage I think? So I’m looking at a 15-20 year repayment period to ensure I’m mortgage free by retirement.

Even if I got all the equity in ‘exchange’ for H’s pension I’d still need to borrow at least £100k and probably more like £150k to buy a house. So that’s at least £1000 a month mortgage. If I didn’t get all the equity, as clearly H needs to be able get somewhere to live, big enough for DC, I would need to borrow even more money – which seems unlikely to be possible/affordable.

Sorry, this is very long! I am not sure what the point of all this is, other than to set it all out and see if anyone has any thoughts.

If you're self employed then they'll look at your accounts and decide what you can pay yourself, not what you do pay yourself. They will also consider your business an asset; you might have to trade it off against the pension depending what kind of business it is.

Solicitor recommended for this one.

Thanks @Unknown83 It's a limited company but I'm a freelancer so the business isn't worth anything as such (I couldn't sell it) and I don't really have any money in it. I take all profit as dividends.

@makingitalladdup

Thanks for the reply.

I wasn't meaning to imply I thought I should get all the equity - more wondering if the equity vs pension is a fair split or not. I suppose I am keen for a clean break and I don't like the idea of getting any of his pension in the future. But perhaps that's stupid.

I fully accept that it's common to have a mortgage at our age -even if we don't split our current mortgage has 13 years left to run. I am just not sure how long a term a mortgage lender will let you have once you hit my sort of age.

I don't necessarily expect him to get a bigger mortgage, or any mortgage at all. I suppose either or both of us could rent instead. Maybe that would be better.

Sorry I don't understand what you mean about 'comparable earnings today'? We both make pretty much same currently and yes I could in theory earn more in the future. His promotions are certainly not guaranteed but they are likely.

Re childcare, I think we'd be close to 50/50 so not sure there would be much/any maintenance.

The pension sharing order will make the split up front usually so still a clean break But if you are trying to split defined benefit pensions it’ll be better for you both to adjust equity instead in proportion to this. The pension company will have to convert a final salary pension amount into a lump sum, split that, and then reconvert balance back into final salary ( layman’s terms here). So 5-2 will no longer equal 3 , it’ll be less than 3 if you get what I’m saying. It’s far less complicated and expensive to split assets in a way to compensate…BUT you really should then use that imbalance to put into a pension pot for your own security, not simply use to reduce a mortgage.

Thanks @MayMorris I think I understand what you are saying. And yes point taken about using equity to top up a pension pot.

Does it negatively impact his pension in other ways (beyond it being a smaller pot of money) if it gets split on a divorce? Are there penalties? Is it seem as making an early withdrawal or are there specific rules for divorce that don't negatively impact it?

I suppose it also depends on whether it's affordable for H to get a place to live on what he would have from the equity. If we were to do roughly 50/50 childcare (it might be more 55/45 because of his shifts) he's going to need somewhere big enough for the DC to be spending quite a lot of time in. It wouldn't be a case of making do for one night a week and every other weekend IYSWIM.

I guess he could also do a smaller buy to let yo top up income to go towards rent, with a view to buying a bigger place when he gets his lump sum.

Sorry ignore me @MayMorris - I think what I am asking in my 2nd paragraph is what you are saying about 5-2.