Consumer Corner: Consciously uncoupling your financial affairs

How to avoid a monetary wrecking ball during a break up

Picture: iStock

Break-ups are rarely pleasant and aside from managing emotions, you could also be faced with managing your joint finances. The best place to start (once you are ready to do so) is with a plan on what needs to be done and who will do it. There will be lots of calls to be made to banks, insurance providers, pension advisors, and/or Revenue.

As relationships progress, there’s the joy of opening a joint bank account, buying a home, owning a dog, and having children. However, when the relationship doesn't work out, all these things will have financial consequences. How things are managed will depend on the break-up, be it a temporary separation or a more permanent arrangement like divorce.

Couples who are breaking up should consider every aspect of their finances from life cover, income protection, critical illness cover, borrowings, savings, investments, and pension plans, according to money expert, John Lowe.

“Given that after a separation, each party is likely to be managing on a lower income, it is also important to work out a new monthly budget."

Tax will play a big role in the future management of finances. If the break-up is temporary, then there would need to be no change in an income tax situation and both parties could still be assessed jointly or separately. However, if the break-up is permanent, then work needs to be done.

Joanna Murphy, CEO, Taxback.com said that your tax status may change following a separation, depending on how it was set up when you were married.

“As a starting point, both parties should notify Revenue of any changes as soon as possible, so that the correct adjustments can be made.” Also, tax credits will need to be sorted out. Within the year of separation, the way in which the parties' tax credits will be organised depends on how they were both assessed during marriage, and in many cases, it is a joint assessment. Revenue is generally quite approachable on these matters and most cases can be sorted with a quick call to the relevant revenue office.

Glenn Gaughran of the Independent Trustee Company said that whether you are divorced, separated, or married your relationship status will have implications on how you are treated for tax purposes. For example, for income tax purposes, a separated couple can still be taxed as a married couple, whereas following divorce, former spouses are always treated as two single people.

Mr Gaughran said that pensions often get overlooked when couples go through a divorce. For many married couples, their pension rights can be even more valuable than the home.

“We often think of the house as being the primary asset, but many people still have substantial mortgages, so the net value of the property can be less than we think. In contrast, pensions, particularly those to which an employer makes significant contributions, can grow to be worth quite a bit.” 

For example, if a spouse’s pension averaged €500 to €1,000 a month in contributions over the last 25 years, the fund could potentially be worth close to €500,000 now. There will be a lot to consider on this as part of the break-up.

Ms Murphy said that maintenance payments can also affect your tax status, depending on their purpose.

“The parent who receives the direct responsibility for the care of a child can change their tax status with Revenue Commissioners to that of a single parent,” she said.

Money matters can be confusing and overwhelming and for more serious breakups many people will hire a solicitor but it also might be worth shopping around for financial advice too if you feel you are getting overwhelmed.