Avoid the financial fallout if you've fallen out of love

Divorcing couples don't have to kiss all their cash goodbye, says Melanie Bien

Getting married may be expensive, but it's nothing compared to what getting divorced can cost. Once assets such as the family home and pensions have been divided up, the courts have ruled on maintenance payments and the legal bill arrives, the split could easily set you back tens of thousands of pounds.

Research from insurer Norwich Union reveals that the average divorce costs around £13,000. Legal fees can start at £800 but are more likely to be nearer £2,000, depending on the complexity of the case and how acrimonious it gets.

So it's not surprising that, according to research from another insurer, AXA, around two million people in relationships have some £480m in savings kept secret from their partners. An estimated half a million people have more than £5,000 each that their partners don't know about. Nearly one in 10 of those surveyed said they kept this money quiet in case their relationship broke down.

But if you are worried about your partner getting his or her hands on any assets you might have hidden away, this is exactly what will happen if you mention them to your tax adviser. New rules mean that the adviser has a duty of disclosure and is legally required to pass on such information to the relevant authorities.

"If a client tells me he or she has cash stashed away, I have to inform the National Criminal Intelligence Service," says David Gibbs, tax partner at business and financial adviser Grant Thornton. "But I can't inform the Inland Revenue without his or her permission."

Whether you have hidden assets you want to keep concealed from your partner or not, financial planning is essential if the worst comes to the worst and you end up in the divorce courts.

"For many people, the issues surrounding a divorce can seem insurmountable, and financial planning is just one aspect of the roller-coaster," says Karen Ritchie, partner at the independent financial adviser Finance4Women, part of M2 Financial. "However, it is such a vitally important step that we would urge anyone considering divorce to look at the financial implications early on in the process."

A financial adviser should be your first port of call after you have seen a solici-tor, says Ms Ritchie. The problem is that most people tend to leave things until the final stages of the divorce - when they discover they have less money to live on than they expected.

"Every case is so different that ideally I like to see people as soon as they have had their first meeting with their solicitor," Ms Ritchie explains. "But in reality I have to run with what financial settlement has been agreed."

It's important to establish early on how much money you have to play with. If you are to receive a lump sum once the divorce has gone through, plan carefully how you are going to spend it. If you have to buy a new home, you are likely to use any lump sum you receive to pay for it, but you should also try to set some money aside for a rainy day. This should be equivalent to three months' expenditure.

Getting a mortgage can be difficult if maintenance payments eat up a large part of your income. Mortgage broker Charcol offers a divorcee's home loan that takes these into account when calculating how much you can afford to borrow.

Ms Ritchie sends her clients away with a "to do" list because most of them are too distressed to realise what they should be doing. And some of these tasks are extremely urgent.

Top of the list is amending your will. If you made a will when you got married, divorce negates this, so you will have to make another one. But don't leave this until you actually get divorced: if you die while you are separated but before the divorce has come through, your spouse will inherit your assets.

Another area to think about is pensions; these can now form part of the financial settlement, with the benefits of one partner split between both. It is worth checking who will receive your pension and other tax-free benefits in the event of your death. Most people nominate their spouse; if you are getting divorced, you may want to make new arrangements.

Even if you expect to live happily ever after, take a look at your finances as soon as you set up home with a partner. Ensure that the mortgage is in both names or, if you own your home outright, that each partner's name is on the title deeds.

"Steer clear of the attitude 'my partner deals with that'," warns Ms Ritchie. "If more people [particularly women] paid more attention to the family's finances while they were married, maybe they wouldn't have a crisis of confidence in the event of a divorce."