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
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