The financial fallout will be quite different depending on whether you’re married or an unmarried cohabiting couple, and it’s important to understand where you stand legally. Our finance guide goes through some of the main areas to think about, from property to joint accounts to pensions, and gives you some pointers for managing your money when you’re going through a breakup.
If you rent your property
If only one of you is named on the tenancy agreement, then this person has the right to remain in the property, but you need to calculate whether one of you can afford to pay the rent alone. If both of you are named on the tenancy agreement then you need to speak to your landlord to either cancel your contract, or get a new tenancy agreement created with only one name, as otherwise you both remain liable for paying the rent.
If you’re married and your own property
If you’re married, you both have equal right to the family home, no matter whose name is on the mortgage. This means that when you get a divorce, your property is likely to be the most important asset that you need to divide. Usually this means selling up and splitting the proceeds, but you may agree that one of you will continue living in the property for the time being.
You need to think about whether the money you’d raise from selling the property will be enough for each of you to buy your own place, or whether you’ll have to rent. And if you’re considering keeping the property, can you afford to meet the mortgage payments alone?
To get a clear picture of the situation, get an up-to-date valuation of the property and speak to your mortgage provider to confirm the sum still owing on the mortgage, and any penalties you could face if you sell the property and pay it off early. If one of you is thinking of keeping the property, ask your provider about the process for changing the mortgage to release the other partner from the agreement.
If you’re unmarried and you own property
If you’re not married, then your claim over the property is governed by property law. So unless your name is on the deeds and the mortgage documents, you don’t have a right to any part of the property, unless you can prove you’ve made significant contributions to the mortgage payments, household bills or renovation.
If you do jointly own the property, you and your partner have to agree to sell it as you both have a right to live there. In the first instance, get the property valued and get a statement from your mortgage provider so that you know where you stand.
Joint accounts and joint debts
Freezing a joint account
If you have a joint account with your partner, when you split up you can contact the bank to cancel the joint account mandate so that the account is frozen and neither of you can withdraw the money. The account will only be reopened once you’ve agreed how to divide the money. If you’re married, the amount in the account legally belongs to both of you, but if you’re not married then it only belongs to both of you if you can show that you’ve both been paying into the account.
Paying off joint loans
If you have a joint loan or a joint account with an overdraft, it’s important to understand that you are both liable for the whole of the outstanding debt. That means that if one of you can’t pay your share, the lender can pursue the other for 100% of the debt. It’s therefore really important that when you’re splitting up you have a conversation about ongoing repayments.
Uncoupling your credit ratings
Also, bear in mind that having a joint finance product may mean that your credit ratings are linked, so any blemishes on your ex-partner’s credit record may impact your ability to get credit. To check if this is the case, apply for your credit reports from a credit rating agency, and if there are financial links between you and your ex-partner, ask for them to be removed through a process called ‘financial disassociation’.
Sharing your pension
If you’re getting divorced, your pensions are an important part of the calculation when your assets are being divided. There are several options for splitting your pension assets. You can get a court order for the pension to be divided between you at the point of divorce (a sharing order), so you can then each continue building up your own, separate pension pots. Or, you can get a pensions attachment order, so that when your partner starts taking their pension, you’re entitled to some of the benefits (or vice versa).
Offsetting your pension
Alternatively, you can offset the value of the pension, so the money in the pension can be taken into account in the overall calculation to divide up your assets. For example, it may be agreed that you get more money from the sale of your house but your partner keeps all of their pension savings.
Think carefully before you offset a pension against other assets.
Before you agree to this though, think about whether you’re likely to have enough money when you reach retirement and consider these steps to ensure you don’t have a pension shortfall. Remember that there are some important benefits to having a pension, so think carefully before you offset a pension against other assets.
Pensions if you’re not married
If you’re not married, splitting up shouldn’t really have an impact on your pension savings: your partner keeps their pension and you keep yours. However, since you’re reviewing your finances, it could be a good time to get on top of your pension saving. PensionBee can help you locate your pensions and combine them into a brand new online plan so that you can manage your pension in one place.
Ongoing living costs
In the case of divorce, the court can order that the financially stronger partner pays spousal maintenance payments to their ex-partner to help with their living costs. If you weren’t married, this isn’t the case, but if you have children together then you will both be expected to pay towards your children’s upbringing. This often means that the parent taking care of the children most of the time receives child maintenance payments from the other parent. You can agree on the amounts between you, or you can ask the Child Maintenance Service to make a calculation.
Making a new budget
It’s likely that your financial future will be altered by your break up, and you may find that money is tighter when you’re no longer with your partner. Think through what your new situation will mean for your income and outgoings, and whether you’ll need to make any changes. A good way of doing this is to put together a new budget - check out our finance guide for help with doing this.
Remember that if you’re now living on your own, you can apply for a single person discount on your council tax, which means your council tax bill is reduced by 25%. If your break-up leaves you struggling to make ends meet, use a benefit calculator to check if you’re eligible for any benefit payments.
Breaking up: a finance checklist
- Make a list of your joint and individual assets and liabilities
- If you own property, get it valued
- Contact your mortgage, loan and pension providers for balance statements
- Remember to take your pension into account when you’re considering assets
- If you’re concerned about your partner withdrawing money from your joint account, ask your bank to freeze it
- Check your credit rating and ask to be financially disassociated from your ex-partner
- Make a new budget with revised income and outgoings
What are your top tips for organising your finances after a breakup? Tell us in the comments below.