
Asset Division During Divorce – Avoiding Costly Mistakes
Asset Division and Divorce
Asset division is a tricky business during divorce. Especially if you’re doing your best to keep things amicable. Going through a divorce is never easy. Beyond the emotional strain, there’s the challenge of untangling finances and ensuring both parties can move forward with financial stability. From pensions to property, careful planning can make all the difference in securing your future. Here’s what you need to know about dividing assets fairly and protecting your financial wellbeing.
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Asset Division Affects National Insurance Contributions
Did you realise that asset division includes your pensions? One often-overlooked aspect of divorce is how it can affect your state pension. If you’ve taken time away from work for childcare or helped in a family business without a formal salary, you may have gaps in your National Insurance (NI) record. These gaps can reduce the amount of state pension you receive in retirement.
The good news? You may be able to fill in those gaps. The deadline to make voluntary contributions for missing years between 2006 and 2016 is April 2025. Checking your NI record on the HMRC website now could help you boost your pension entitlement before it’s too late.
This is particularly important for farming families or couples where one spouse has contributed to a business without receiving an official salary. Ensuring both parties get their full pension entitlement during asset division is a crucial step toward long-term financial security.
Child Benefit and NI Credits - Are You Missing Out?
If you’re separating and weren’t previously claiming Child Benefit due to income limits, now might be the time to start. The income threshold for the high-income child benefit charge increased in April 2024, meaning that families earning under £60,000 may now qualify.
Claiming Child Benefit doesn’t just provide financial support - it also gives NI credits, which count towards your state pension. If one parent has taken time off work to raise children, ensuring that they receive these credits can make a big difference in retirement. If your family was already claiming, consider switching the claim to the lower-earning spouse to help secure their future pension entitlement.
Asset Division and Pensions - Don’t Overlook Your Future
When it comes to financial settlements, people often focus on property and savings, but pensions can be just as valuable. The most common ways for sharing pensions are:
- Pension sharing order – A legal agreement that gives one spouse a percentage of the other’s pension pot.
- Pension offsetting – One spouse keeps the pension while the other receives assets of equivalent value, such as property or cash.
Both options have their pros and cons, and comparing assets like property versus pensions isn’t always straightforward. Seeking professional financial and legal advice before making any decisions in asset division is key.
Tax Considerations - Minimising Unnecessary Costs
Asset division in a divorce isn’t just about fairness - it’s also about tax efficiency. While recent changes to Capital Gains Tax (CGT) rules have eased some of the tax burden when transferring assets between spouses, CGT may still apply if assets need to be sold.
Careful planning can help to minimise tax liabilities. For example, structuring lump-sum settlements or selling assets in a tax-efficient way can reduce tax exposure. Working with financial planners and tax specialists can help ensure both parties keep as much of their wealth as possible.
What If You Can’t Agree?
If divorcing couples can’t reach a fair financial settlement, the courts may have to step in. Judges will consider factors such as income, financial needs, and each spouse’s contributions during the marriage. This relates to financial and non-financial contributions.
For those who own businesses, land, or farming assets, a court-imposed asset division may not always be the best solution. A more tailored approach, such as restructuring business assets or creating tax-efficient settlements, can lead to better outcomes.
We work closely with accountants, financial planners, and land agents to ensure financial settlements protect long-term wealth.
Secure Your Financial Future with the Right Advice
Asset division in divorce isn’t just about what’s fair today - it’s about securing your financial future. From ensuring full pension entitlement to structuring settlements in the most tax-efficient way, the right legal and financial advice can make all the difference.
If you’re going through a divorce and need expert guidance, Winston Solicitors can help. Our experienced Family Law team is here to support you through every step of the process, ensuring you achieve fair and financially secure asset division.