Posted by Dave Seager, consulting adviser to Legal Futures Associate SIFA Professional
It would be no surprise to readers of my blogs for SIFA Professional that we advocate a more joined-up approach to areas of legal advice where there is a financial overlap or financial implications.
Consequently, I was pleased to see Legal Futures’ positive coverage of the IRN Legal Family Law Market Trends Report 2025, earlier this month.
Why? Primarily because of this: “The report predicted that an ‘increasing number’ of family law providers would take a ‘more holistic approach’, using divorce coaches alongside counselling, therapy, wellbeing and financial advice services.”
Financial planners, and particularly SIFA Professional members, will always be keen to collaborate at an early stage of a separation or divorce, and it seems more family lawyers are recognising the benefit of this holistic approach.
In truth, it may be vital, with a client’s pension being potentially one of the biggest financial assets, alongside the house, needing to be factored into any negotiations and settlement.
Of course, true financial planners will be advocates of cash flow modelling which is a crucial tool in the process.
The importance of cash flow modelling
For clients going through a divorce, building a cash flow plan will help them understand the amount of income they need for the remainder of their life.
It will factor in day-to-day spending and any other specific requirements, such as school fees, annual holidays, retirement and ad hoc items such as buying a new car or kitchen. Assumptions about inflation, investment returns (as agreed with the client) and taxation can be built into the bespoke model.
Sadly, it may not be possible for a client to maintain the same standard of living following a divorce, so a cash flow plan can help prioritise spending and manage budgets going forward. Any number of scenarios can be modelled to reflect different spending patterns so that comparisons can be made and discussed as part of the negotiation.
Once the required amount of income is agreed, the model can be used to look at the capital sum needed to produce it. It is important to ensure that the agreed income – which might have to support the client for many years following a divorce – can maintain its relative spending power over time.
Of course, every client is an individual, so as mentioned above, when a financial planner discusses investment return, they will also consider each client’s individual attitude to investment risk. For example, a client with a more cautious approach may need a larger capital sum to generate the future income they need.
Post-divorce – setting new goals
For clients who have already reached a settlement, the period after a divorce is about setting new goals for the future and planning to achieve them.
Once a capital sum has been awarded, a cash flow plan can be used to consider how to structure assets to provide income in the most tax-efficient way and in line with a client’s attitude to investment risk.
Using a cash flow plan at this stage is essential for managing future expectations. Importantly, it will highlight if the client is spending too much and is likely to run out of money. It is better to know this at the start and review spending accordingly, than to have a nasty shock further down the line.
For all clients, ensuring sufficient income in retirement is key and frequently a divorce settlement will include a pension share that needs to be transferred into a new plan in their name.
A cash flow plan will consider the value of the pension share along with any other personal pension funds, charges on the new plan, the potential to make further contributions and likely investment returns, to give the client an idea of the income they can expect at the point they choose to retire.
If the client’s circumstances suggest they will not have a sufficient pension to fund spending in retirement, the cash flow plan can help look at other assets, for example downsizing a property to release additional capital.
For those who have significant pension funds, a cash flow plan will also highlight the potential impact of the new lump sum allowance, and lump sum and death allowance, as well as any tax charge that might arise, and enable your financial planning partner to work with the client to mitigate a possible tax charge.
The flexibility of cash flow plans is key
Cash flow planning is an interactive process. For it to be most effective, the financial planner will demonstrate it with clients, often live on screen during a collaborative meeting.
Obviously, all cash flow models are a snapshot in time and are based on a set of assumptions being fulfilled. The reality is that client circumstances and objectives change, so it is important for the financial planner to build a long-term relationship with your referred clients and ensure that cash flow plans are revisited and reviewed regularly.
Your chosen financial planning partner will involve you in these reviews as appropriate.
By working together, lawyers and financial planners can ensure that clients going through separation or divorce can undergo a smoother transition to their new individual lives. Cash flow planning tools are integral in ensuring that a client has sufficient money to fund their daily life, future needs, and retirement.
Please ask your local SIFA Professional member about the Financial Planning for Pensions and Divorce Handbook
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