Divorce & Financial Planning: A Guide for British Expats

This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, they are subject to change and we are not responsible for any errors or omissions.

Divorce is, by nature, a stressful and complicated time for everyone involved. For British expats, however, the process can be even more difficult. You may need to navigate a foreign legal system, language barriers and difficult questions about asset division and where you will both live. This is a vast and sensitive topic, but it is important to have a robust financial plan which can help to carry you through an expat divorce if this ever happens to you.

We write this guide as financial advisers based in Murcia, Valencia and other parts of Eastern Spain – serving British expats in our locales. However, many of the general principles can be applied in other jurisdictions. If you want to discuss your financial plan with us, please get in touch to arrange a no-obligation financial consultation, at our expense:

+34 966 460 407
info@scottsdale.eu

Navigating the courts

If you and your spouse live in the UK, the divorce process is governed by domestic law (e.g. under England & Wales courts). However, if you and/or your spouse live overseas, you might choose to use the local legal system.

If your spouse is Spanish and you are British, then your spouse may wonder if they can divorce using the English courts. The short answer is yes – even if you both married overseas – provided certain criteria are met. The key step is to seek specialist expat legal advice, before making an application, to be sure of your rights and obligations.

What happens to the assets?

In the UK, the default division of assets in a divorce settlement (for a marriage longer than 5 years) is 50:50. This usually takes into account contributions made before the marriage. In Spain, the default legal position is slightly different. Any assets acquired via “common funds” over the course of the marriage will be split 50:50.

In Spain, you do not need to cite specific grounds for a divorce application (e.g. “unreasonable behaviour”). It is done on a no-fault basis. In England & Wales, the law recently changed to a similar position on 6 April 2022. This can make the divorce process easier. Assuming neither party contests it, an expat divorce can be finalised in as little as 5 months.

General principles for financial planning

Whilst legal advice is vital during the expat financial planning process, be mindful that most lawyers are not also financial planners. They may not know how to navigate the UK and Spanish tax systems to best protect your long-term financial goals, for instance. Therefore, it can help to work with both professionals to protect your interests.

Did you know, for example, that up to 15% of British couples ignore pensions during the divorce process? Yet pensions can be the second – or even first – most valuable asset. Women, in particular, can prioritise keeping the family home at the cost of keeping pension wealth. Yet this decision can lead to financial hardship later in retirement.

As such, make sure you fully account for all assets (including pensions) during the divorce process. Be careful not to try and “hide” assets – e.g. in offshore accounts – in an attempt to keep more of the wealth after the settlement. Under English & Welsh law, all assets must be disclosed during the divorce process, – including those overseas in Spain, or elsewhere. Failure to do so will likely lead to legal punishment by the courts.

The benefits of collaboration

A respectful, collaborative divorce is almost always faster, cheaper and less detrimental to both parties’ long-term wealth. Instead of one person issuing letters and the other responding, a series of four-person meetings (Spouse A and their lawyer, plus Spouse B and their lawyer) can help to keep everything calm and neutral as all relevant information is shared and discussed.

This is not always possible, of course. Here, a financial planner can be valuable to help you protect your wealth and finances. For instance, you may agree to move your share of jointly-held finances (e.g. in a Spanish bank account) into your own bank account – just in case the former is drained by a resentful spouse.

Divorce might involve selling certain assets such as shares or property. Here, a financial planner can help you to minimise tax (e.g. capital gains tax) and protect your financial position. A specialist expat adviser can also help you navigate complex areas during a divorce such as “cashflow modelling”. Here, you discuss different scenarios in light of your current financial circumstances to help make informed decisions about the future. For instance, does it make sense to remain in your marital home? What about pension offsetting? A financial adviser can help you understand these questions and provide relevant information to guide you through.

Invitation

If you are interested in discussing your own financial plan or inheritance tax strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:

+34 966 460 407
info@scottsdale.eu

 

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