Separation – “Conscious Uncoupling” The Scottish Way?

The last published statistics relating to family separation in Scotland show that in 2012/2013 9,700 Scottish marriages ended in divorce. Although this represents a decrease in the divorce rate of some 14% over previous years, this is still a significant number. That statistic does not include the number of co-habiting relationships or civil partnerships that ended in the same period. The decision to end a relationship is a particularly difficult one for any couple, particularly if there are children involved.

Family law in Scotland has developed significantly over the past decade, in that the number of options available to separating couples (in terms of how things are sorted out) have increased and developed. Clients are normally concerned about two main issues – arrangements for children and separation of finances. The ways in which decisions can be made following separation are numerous and varied.

Some couples prefer to make joint decisions about how to take things forward. Even then, it is usually helpful and sometimes necessary to have legal assistance to check and finalise matters. If the decision to separate was not made jointly then assistance from a legal adviser can help with the planning. Specialist family solicitors are highly trained and recognise the importance of clients being fully informed of the different ways these matters can be approached. Supportive advice is key when deciding which approach to resolution is appropriate to the circumstances.

Collaborate

Collaborative practice is a fairly recent, innovative process. Clients are supported by their own advising lawyer through a structured series of meetings which are also attended by the client’s former partner and their own legal adviser. The collaborative process was designed with regard to the emotional impact of separation and the impact that emotions can have upon the decision-making process, and holds the interests of all family members at the forefront of discussions. The client, his or her partner and the solicitors agree to take a problem-solving approach. All information relating to assets and liabilities is disclosed and discussed openly. Other professionals including counsellors and financial advisers (termed “financial neutrals”) can also be involved in the collaborative process. Support from third parties can be invaluable. A third-party financial adviser invited to enter the collaborative process to support the separating clients is trained in the collaborative process and is aware that everyone concerned aims to resolve any issues in as constructive a way as possible. Options are identified and explored with full information and advice in a joint problem-solving exercise.

The solicitors involved in the process would suggest to clients that it may be beneficial to involve a financial neutral. Assuming clients were on board with the suggestion, the solicitors would identify a suitably trained adviser who would be asked to contact the clients and arrange a meeting to discuss matters.

How can the financial professional help?

The first meeting with the clients would be a fact finding meeting to enable the financial neutral to get a good overall picture of the family and individuals’ current financial circumstances. Any potential future changes would be considered. The purpose of the first meeting is also to put each party at ease and give them confidence in the financial adviser’s own experience and neutrality. Time would be taken to explain qualifications, experience, regulatory aspects, and the part that the financial neutral will play in the process.

Prior to this first meeting, the solicitor would provide as much information as possible to make maximum use of the time spent with the adviser. The solicitor may provide the financial neutral with a schedule of matrimonial property detailing the nature and value of all matrimonial assets and liabilities.

It can be very helpful if the clients attend the first meeting with a list of their regular expenses and spending patterns split into essentials and discretionary expenditure. Copies of recent statements for any pensions, investments and policies and details of any outstanding mortgages, loans and interest rates are also useful.

The financial neutral would ask many questions of the clients – about their occupations, retirement plans, state of health, and whether they have Wills and Powers of Attorney in place. They would spend some time talking about their approach to savings and investments, attitude to investment risk and capacity to cope with fluctuations in asset valuations. These factors can be important when ascertaining which of the joint assets are more suitable to be divided as opposed to being transferred to one spouse, and vice-versa.

A financial neutral will be able to help the clients’ to project future cash flow requirements, taking into account future life events such as education costs, care costs and the repayment of mortgages. It is essential for this exercise to be carried out by every separating couple. In some cases it may provide reassurance that the future financial picture is rosier than they imagined, and for others the exercise will help to identify an income gap and enable planning about how best to address it.

In theory it may seem like a simple task to list all of the assets and come up with an overall value to base decisions on, but there can be pitfalls where couples have held funds in different financial wrappers. There may be taxation consequences of encashment, sharing or transfer of ownership, and other factors such as exit penalties on policies also need to be investigated. Pensions are a particularly tricky area, where there are many variations and the current value is only part of the picture. Sometimes pension sharing or moving a fund could result in a loss of future guarantees, and consideration of how funds are dealt with on death is also important. Other factors to consider are the tax-free cash element of the pension and the likely income in retirement. A suitable qualified financial neutral will investigate all of these factors in detail, explaining the implications to both parties as well as making recommendations as to the most efficient way of utilising the assets available to secure the needs of the individuals concerned (while also having regard to the family unit going forward).

We would like to thank Amanda Masson, Private Client Partner, Harper Macleod LLP Solictors for her contribution to this article. Our Chartered Financial Planners Louisa France, Ross Young and Stephen Harrower are all registered as financial specialists with Consensus Scotland so will be able to assist with any questions you have.

The online web resource is a key aspect of our partnership with the Law Society of Scotland. This has been designed to provide relevant information to support solicitors when discussing their clients’ finances. Download factsheets ranging from Key Facts about Pension Reform and Pension Reform on Divorce to the latest Market and Economic Commentary.