Client divorce: why you must not be late

Managing director of Voyant UK, Bob Freeman, explains why you need to be involved in your client’s divorce proceedings from day one.

In today’s world, divorce, while not quite as inevitable as death and taxes, is undoubtedly part of the fabric of life for many.

Somewhat surprisingly then, very few people seem to really appreciate that, long after the immediate emotional pain has abated, the financial implications of divorce can still spell upheaval, insecurity and even genuine poverty for one or both partners.

Mediation and the ‘Tesco law’

By law, all couples who cannot agree how to divide up their belongings and share responsibility for their children are required to attend a mediation awareness session with a qualified mediator. This requirement, introduced two years ago for legal aid cases, and extended to non-legal aid cases in April 2011, has already led to six out of ten legally aided divorce cases being settled by agreement.

Each party still has the right to refuse and to insist on going to court, but the obvious advantages of a successful mediation process are significant savings in cost and the immeasurable benefit for both parties of avoiding a daunting, lengthy and often rancorous court case.

The emergence of this mediation process provides a real opportunity for IFAs to work collaboratively with solicitors, who face their own challenges in terms of future business models, particularly with the Legal Services Act coming into force in October 2011.

Reports suggest that up to 3,000 high street legal firms may disappear. There are fears that legal services will become “commoditised” and that private client solicitors may face potential competition from what has been referred to as ‘Tesco law’.

As a consequence, relationships between solicitors and IFAs appear to offer significant mutual benefits, especially in areas of common interest such as divorce cases. Here, specific areas of expertise can combine powerfully to create better outcomes for an especially vulnerable part of the community – the one in three (if we believe the oft-quoted statistic) marriages that will end in a parting of the ways.

Research suggests that, compared to those in a committed partnership, the typical single parent with one or more children has among the lowest average income; relies heavily on state benefits; spends more on childcare; has one or more part-time jobs; spends above average on housing needs, and has little or no cover in the event of death, illness or critical illness. For many in this category, saving regularly towards a better future is a distant and unattainable dream.

So, why does divorce too often result in disadvantage and penury for those who were previously in a reasonably good financial state while part of a family unit?

Simon Graves, a chartered financial planner, of Lumsden Consultancy, who specialises in advising in divorce cases, explains:

“Because divorce results in a fracture of a financial unit, i.e. a family, mutual dependencies and economies in areas like salaries, benefits and household costs are lost, so the net effect is typically that both parties end up poorer.”

Given this, it is not surprising divorce can too often trigger protracted, unsavoury and expensive legal haggling over the financial details of a settlement.