Breakdown
of Marriage and Relationships |
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 Breakdown
of Marriage and Relationships
INTRODUCTION of Marriage
Breakdown The breakdown of a marriage or relationship is usually both difficult and stressful for both parties. In the circumstances, it can be easy to overlook the key role financial planning can play in preparing for the new lives which you both will lead. The purpose of this guidance is to give you information to enable you to conduct your own review of your protection requirements. General Protection Planning The alteration of your protection plans and wills to ensure that they meet your new priorities. Restricted Guidance The guidance in this report is restricted to the area of financial protection through life and health insurance. It is not intended to provide you with a tailored comprehensive planning review. We may be able to answer queries by contacting us at enquiries@goforcustomer.co.uk .If you are in any doubt about your requirements then you should seek professional advice. SETTLEMENT PROVISIONS - MARRIED COUPLE (GENERAL) Divorce/separation - legal position If you are married, the courts have power under the Matrimonial Causes Act to impose both periodical payments orders (maintenance orders) and property adjustment orders (one-off asset transfers). PROTECTION from marriage breakdown Need to review - payer It is very important to review your life and health cover, in the light of the changed circumstances following the end of a relationship. Cover for maintenance In particular consideration should be given to:
(Cross reference www.goforcustomer.co.uk Life Assurance, Find Out More). Existing life cover beneficiaries The beneficiaries of your current life assurance policies including any pension scheme's death in service cover should be examined to ensure that they are appropriate to your changed circumstances. It is usually possible to alter beneficiaries, but where this is not the case, it may be necessary to arrange replacement cover. Need to review - recipient For the recipient of maintenance It is very important to review the family's life and health protection arrangements, in the light of the end of the relationship. Cover for maintenance The maintenance payments by a spouse or partner would cease if they were to die. It is therefore important to ensure that there is enough life assurance cover for this need. You should also make sure that a spouse's or partner's maintenance payments would not stop if they were to be seriously ill and unable to work. (Cross reference www.goforcustomer.co.uk Life Assurance, Find Out More). Existing life cover beneficiaries You should find out about the maintenance payers existing life assurance arrangements to see if they provide adequate cover in the changed circumstances. It may well be necessary to change the beneficiaries of these policies, but where this is not possible, there may need to be replacement cover. WILLS, SETTLEMENTS AND INHERITANCE TAX General need for review As circumstances will change significantly following a breakdown in a relationship, you should consider whether any changes need to be made to your will and any inheritance tax planning. Wills - divorce outside Scotland Divorce does not automatically revoke the provisions of a will. However, the general effect is that after divorce, your will is read as if the spouse were no longer alive. Thus if a spouse is named as executor in an existing will, they cannot take up that role after a divorce. Recommendation of new will Divorced and separated couples should make a new will as soon as possible to ensure that the beneficiaries of their respective estates are those whom you would individually choose. This will remove any doubt about your intentions. Seeking professional advice from a Solicitor or Will specialist is the best option. Trusts - general You should review the beneficiaries of any trusts that you have established, including life and pension policy trusts. You should also consider whether the trustees need to be changed as you may no longer wish ex-partners to have any control over the trust assets. Flexible trusts (usually but not exclusively used for life assurance) Your trustees should be able to alter the beneficiaries of a flexible trust. The beneficiaries whose existing entitlements are reduced will be deemed to make gifts to the new beneficiaries of their lost entitlements. Where beneficiaries have their existing entitlements reduced, they are treated as if they had made gifts. These transfers count as potentially exempt transfers and, in the event of any inheritance tax liability arising on them, the liability to pay the tax would fall on the trust. It may be possible to add new beneficiaries to the trust. Fixed/absolute trusts It is not possible to change a beneficiary under an absolute trust without the beneficiary's agreement and involvement. This cannot be obtained from a minor beneficiary. In the circumstances, your only course of action may be to ensure that no further gifts are made to the trust. For example, premiums could be stopped under a life assurance or savings policy. This action may have significant and detrimental affects on any arrangements so ensure you seek professional advice or are fully aware of effects of any changes. Discretionary/accumulation and maintenance trusts None of the potential beneficiaries of a discretionary or accumulation and maintenance trust has any entitlement to benefit until the trustees make an appointment. It may be possible to add new beneficiaries to the trust. Amending trustees The provisions for changing trustees vary from trust to trust. Most trust deeds do not allow the creator of the trust to remove existing trustees, except on grounds of negligence, although they should include a power to allow the voluntary resignation of trustees. You should seek legal advice if you wish to remove a trustee from an existing trust and that trustee is not prepared to co-operate. Inheritance tax - general married Gifts between spouses domiciled in the UK are exempt from inheritance tax. This remains the case, even if the couple separates. The inheritance tax exemption is only lost when the decree absolute stage is reached. Lifetime gifts to a former spouse for maintenance are exempt. Gifts for the maintenance, education or training of a parent's own children are exempt until the age of eighteen or when they stop full time education, if later. Inheritance tax - general unmarried There are no special inheritance tax reliefs for gifts between unmarried couples. Similarly, any maintenance paid after the breakdown of a relationship is regarded as a gift, which is subject to the usual inheritance tax rules. Gifts for the maintenance, education or training of a parent's own children are exempt until they have reached the age of eighteen or when they stop full time education, if later. Need to review planning - married Many married couples existing inheritance tax planning was based on taking full advantage of the inter-spouse inheritance tax exemption. Once you have divorced, you will not have the benefit of this exemption even if you leave assets to your former spouse. Your inheritance tax planning needs to take account of this change. In particular, any existing life assurance policies that are designed to meet a liability which arose on the second death of you and your spouse may no longer be appropriate. Need to review planning - unmarried Many unmarried couples existing inheritance tax planning has been based on the provision which you wished to make for the partner. Your inheritance tax planning needs to take account of this change as you may no longer wish to provide as much or exclude him or her. In particular, any existing life assurance policies may no longer be appropriate, if they were designed to meet a liability which arose on the first death of you and your partner. SUMMARY
OF GUIDANCE It is advisable to consider: Life assurance Both (ex) Partners should take out life assurance. If either (ex) Partner were to die, there would be serious financial consequences for the family. Income Protection insurance Both (ex) Partners should have income protection to replace their income in the event of illness. For a home-carer or non working individual suitable cover should still be arranged under Income Protection home-carer cover Critical Insurance Cover Both (ex) Partners should have critical illness insurance to provide a lump sum in the event of their suffering one of the specified serious illnesses. Private Medical Insurance Medical insurance should be arranged for the individuals. SUMMARY OF GUIDANCE It is advisable to consider: Life assurance Both Partners should take out life assurance. If either Partner were to die, there would be serious financial consequences for the family. Income Protection insurance Both Partners should have income protection to replace their income in the event of illness. For a home-carer suitable cover should still be arranged under Income Protection home-carer cover Critical Insurance Cover Both Partners should have critical illness insurance to provide a lump sum in the event of their suffering one of the specified serious illnesses. Family Medical Insurance Medical insurance should be arranged for the family. SUMMARY OF GUIDANCE It is advisable to consider: Life assurance Both Partners should take out life assurance. If either Partner were to die, there would be serious financial consequences for the family. Income Protection insurance Both Partners should have income protection to replace their income in the event of illness. For a home-carer suitable cover should still be arranged under Income Protection home-carer cover Critical Insurance Cover Both Partners should have critical illness insurance to provide a lump sum in the event of their suffering one of the specified serious illnesses. Family Medical Insurance Medical insurance should be arranged for the family. (Cross reference www.goforcustomer.co.uk Life Assurance, Find Out More). |