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Lump sum payments are a useful way of obtaining a clean break, as it means no future financial ties between you and your ex-partner. The following points are important to consider if you are unsure as to what your options are.
In the short term…
While you decide what your options are, place the lump sum into a savings account. Be sure to keep a portion of the cash in your current account or in an easy access savings account to pay for unexpected expenses or to tide you over until you have a plan in place.
Cash you put into UK banks or building societies is protected by the Financial Services Compensation Scheme (FSCS). This means that should the provider fail, the FSCS will pay out £85,000 per person.
If you have more than the limit within the same bank, or authorised firm, it’s a good idea to spread the amounts across different providers to ensure your money is protected. It’s worth noting that money in National Savings & Investments (NS&I) is guaranteed by the government, no matter how much you have.
In many cases, property will be central to a divorce settlement as it’s a fundamental part of any family. Divorce can be a distressing time and so it can be tempting to keep the family home and continue to live there so as not to cause further disruption to your own and your children’s lives. Since you’ll now have to pay for this home with one income, it may be far more beneficial to consider downsizing. Moving to a less expensive home or renting may be a good option to consider.
An important aspect of this decision will be your budget. Do you have a good grasp on what your incomings and outgoings are on running the household? If not, the next step would be to look at this in detail so you know where you stand in terms of affordability. An expenditure questionnaire can you useful to use if you’re not sure where to start.
Take your time in working out what your immediate financial priorities and your long-term goals are, including any existing debts as you may want to address these first.
Don’t forget about your pension. Consider what your income may look like in the future and make sure you include what your State Pension is likely to be. You’ll also need to consider any pension arrangements that may have been settled as a part of the divorce and if it’s worth topping these up rather than setting up a new policy.
Investing a portion of your settlement will likely be a part of your plan. Take independent financial advice unless you feel comfortable choosing your own investments. A Certified Financial Planner will be able to help you with this and provide a solution that is right for you.
Your children’s future may have already been catered for in the divorce settlement, if not, you may want to help with this if you can. If this is a priority for you, you may want to invest some of your lump sum to pay for the costs of your children’s education or the costs of bringing them up.
If you are in a similar situation and are unsure as to what to do, it’s best that you seek advice and here at BFP we will be more than happy to help.