Wealth Check: Coping with the cost of starting single life again after a separation
The end of her marriage has forced Sally Murfitt to find out what she can afford on her own and focus on planning for a secure future
Saturday 22 June 2013
Sally Murfitt is dealing with the fallout from a separation, and is keen to find out how to go about managing her finances on her own so she can start planning for the future.
The 57-year-old from Pebmarsh, Halstead, Essex, works as an IT delivery manager for a telecoms firm and earns around £45,000.
She lives in the house she bought with her husband back in 1986 for around £25,000; the mortgage has been paid off in full.
The good news is Sally has built up some savings of her own, and has individual savings accounts (Isas) with NatWest and Skandia.
"There is £5,000 in each of these," she says. "I also have around £500 in a savings account with NatWest."
In addition, Sally has a number of investments including shares in BT, RBS, HBOS and Greene King.
Sally currently contributes around 6 per cent into a work pension scheme, to which her employer also makes contributions. She also pays around £200 a month into a smart pensions scheme, a type of salary sacrifice scheme.
While Sally does have a credit card, she pays this off in full every month, and doesn't have debts on any other cards or loans.
"In the past, everything has been paid for jointly, and all decisions have been made by my husband and I together," she says. "But now we're separated I need to find out what is mine – and what I can afford on my own, as he is looking to move on, and this includes wanting to sell the house. I need to plan for large costs such as a house and a car, and also need to be able to maintain my daughter at university. My focus now is to find out how much I need to save to ensure a secure financial future."
Our panel of independent financial advisers (IFAs) agree that while Sally seems to be in a reasonable financial position, she potentially has some significant expenditure in front of her, including a new house, helping her daughter through university, and planning for her own retirement. They urge her to look at each of these to determine how much they will cost, and what she needs to do to prepare. As a matter of priority they advise her to get a grip of her pensions and investments as these could be used to meet her financial goals.
Press on with the divorce
Danny Cox from Hargreaves Lansdown says that to start planning for the future, Sally needs to settle the divorce.
"To do this she needs to understand the value of the marital assets, and take advice on how the assets, including pension benefits, should be split, alongside any share of income."
The best approach may be to speak to a divorce specialist IFA.
Scott Gallacher from Rowley Turton adds that as Sally has a daughter, she and her husband may want to consider a "collaborative divorce".
"This may be a better option as parents are supported by their lawyers through the process of negotiating and reaching agreement on all the issues that affect their children," he says.
Build up savings
Patrick Connolly from Chase de Vere says Sally needs to amass cash savings in to meet her financial objectives and provide a cushion to cater for any short-term emergencies. This should be equivalent to around six months' expenditure.
"She should aim to use her annual cash Isa allowance as all interest is tax-free," he says. "The current allowance is £5,760."
Mr Cox adds that while Sally has been sensible about using Isas, she needs to check the rates she is getting and be prepared to move her money to a more competitive account.
"She should also direct any regular savings to the cash Isa – rather than into her NatWest account," he adds.
Plan new property purchase carefully
Our advisers commend Sally on having paid off the mortgage on the property she owns with her husband.
"She has benefited from buying in 1986 when prices were much lower than today," says Mr Connolly. "But if Sally is potentially looking to buy again now, she needs to have a clear plan as to what she is looking to purchase, how much it is likely to cost – and how she is going to pay for it."
Depending on the value of her current property and the amount she will need for a new place, she may have to look at taking out a mortgage.
Focus on pension planning
Mr Connolly says she needs to get a better grasp of what benefits she has actually accrued in the scheme and what income she is likely to get in retirement.
"Sally could either be on track for a decent standard of living in retirement, or could be facing a pretty basic lifestyle," says Mr Connolly. "She really needs to understand where she is so she can then look at options to improve her position."
Mr Cox agrees that she should ask her employer for a projection of what her pension will be at retirement.
"In addition, Sally will benefit from a state pension from age 66, so should request a forecast via Gov.uk," he says.
Mr Gallacher urges Sally to take control of her investments.
"For example, her investment in Greene King stood at £71,523 in 2009, but since then, has risen to more than £120,000," he says. "Having the vast majority of her investments in a single company share is a very high-risk strategy. If Sally is not a very high-risk investor, she should consider selling these shares, especially as it's likely she'll need funds to settle any divorce."
Mr Connolly agrees.: "Ideally, Sally should sell out of all of her shares, as she could then use the money to meet her financial goals and to invest more conservatively. But she needs to be aware that the sale of these shares will incur a hefty capital gains tax bill."
Crucially, Sally should seek independent financial advice before selling her shares.
Be sure to diversify
Mr Cox adds that while investing in shares over time is likely to beat the returns on cash, a portfolio should be more diverse; he suggests Sally consider exchanging her shares for a fund such as a unit trust.
"Unit trusts typically have between 40 and 80 different holdings and the trading decisions are made by a professional manager," he says. "Equally, whether shares or a unit trust, these should ideally be held within a stocks and shares Isa to shelter them from tax."
Check work-based protection policies
Mr Connolly points out that Sally's work pension scheme will provide her with life cover while she is still working, and suggests she check what other benefits are offered by her employer.
"She needs to consider what would happen if she was unable to work due to ill health or injury," adds Mr Gallacher. "She may get some cover through work, but as this may not be sufficient, she may need to take out income protection."
If Sally has not updated her will since separating from her husband she should do this right away, says Mr Cox.
"This will ensure her assets pass to the people she wishes to benefit upon her death."
Do you need a financial makeover?
Write to Julian Knight at : The Independent on Sunday, 2 Derry Street, London W8 5HF
Compare with the Independent: See how much you could save by switching credit cards. Compare now
Ukraine crisis is Russian roulette for investors
Make money as a mystery shopper
Investment Insider: Poundland may not be cheap when it floats
How to start your own internet business
The whole truth about legal fees: Conveyancing can knock a big hole in home-buyers' finances. To get the best deal you must cross-examine solicitors about their charges, says Sue Fieldman
- 1 Bad cattitude: Family call police after crazed and 'hostile cat with a history of violence' attacks baby before attempting to 'flee custody'
- 2 Family forced to flee home after discovering 'terrifying' nest of spiders in bananas
- 3 First Kiss: Filmmaker gets 20 strangers to make out on YouTube with awkward results
- 4 Grace Dent: Who cares if she spells it Barraco Barner? Gemma Worrall is more employable than some bookish arts graduate
- 5 Bob Crow death: 'Admired by his members, feared by employers' - Tributes pour in for RMT union leader and 'working class hero' Bob Crow
Britain's top vet sparks controversy with call for ban on slashing animals' throats in 'ritual' slaughters for halal and kosher meat products
Exclusive: Impact of immigrants on British workers ‘negligible’
Katie Hopkins continues campaign to become Britain's most hated talking head with poorly timed Bob Crow tweet
Ukraine crisis: Russia pledges to 'retaliate against sanctions' as Ukrainian president says Crimea vote will not be recognised
The quiet diplomat: Catherine Ashton - recognised and admired in all the world’s troubled countries, yet ridiculed at home
Grace Dent: Who cares if she spells it Barraco Barner? Gemma Worrall is more employable than some bookish arts graduate
iJobs Money & Business
£1000 per month: Inspiring Interns: The company works with Tier 1 FTSE 100 Ban...
£35000 - £60000 per annum + Bonus + Benefits: Pro-Recruitment Group: You must ...
£60000 - £80000 per annum + BONUS + BENEFITS: Harrington Starr: A top, City ba...
VOLUNTARY ONLY - EXPENSES REIMBURSED : Reach Volunteering: Fantastic opportuni...
Day In a Page
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square
A charming four-bedroom house overlooking Burleigh Square Park, close to Thorpe Bay
A three-bedroom farmhouse with a large inglenook fireplace and exposed beams
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station
A Grade II-listed home with six bedrooms, secluded landscaped gardens and views across Hadley Green
A Grade II-listed mansion with two apartments and a cottage, near Gretna Green
A three-bedroom Grade II-listed mews house with vaulted ceilings and roof garden
A spacious Grade II-listed family home with annexe and equestrian facilities among four acres of land in Itchingfield
A four-bedroom home with exposed brick walls and open fires in the picturesque village of Northill