In recent years, divorce has become a hot topic, particularly around the start of the year. Family law firms often promote January as "divorce month," citing holiday-related marital conflicts leading to new year separations. However, some legal experts argue that March might actually be the peak time for divorces based on two decades of court data. Regardless of timing, high-profile splits like that of Brad Pitt and Angelina Jolie have kept divorce discussions in the media spotlight. This article explores an unconventional approach to financial planning through divorce, highlighting how changes in tax laws can influence marital decisions.

The world of financial planning is increasingly intertwined with one's marital status. A couple, whom we'll refer to as Mr. and Mrs. Smith, considered a creative solution to optimize their finances. Mark, the primary earner with a substantial pension worth over £1 million, and Kirsty, who stepped away from her finance career to raise their children, faced challenges due to recent changes in inheritance tax rules. The chancellor's surprise announcement made pensions less effective as a tax-planning tool for wealthy families. In response, the Smiths contemplated a staged divorce to split Mark's pension and reduce their tax burden. By designating Kirsty's second home as her primary residence, they also aimed to avoid a hefty council tax increase. After retiring, they planned to reunite, live by the sea, and remarry to benefit from spousal inheritance tax exemptions.

This unconventional plan, however, faced several hurdles. The potential legal costs and emotional upheaval raised questions about its practicality. Moreover, Kirsty's insistence on a lavish second wedding and honeymoon ultimately derailed the idea. Despite this, the conversation underscores the growing importance of marital status in financial planning. For many cohabiting couples, getting married could offer significant tax advantages. Proposed changes in pensions and inheritance tax make marriage and civil partnerships more attractive, allowing assets to transfer tax-free between spouses upon death. Lisa Caplan, a chartered financial planner, emphasizes the need for spouses to maximize both of their ISA allowances and other tax benefits.

As tax allowances shrink, gifting money has become a critical aspect of tax planning. Wealthy couples are exploring trusts to protect gifts from adult children's potential divorces and cohabitation agreements to prevent property claims. Prenuptial agreements, once seen as unromantic, are gaining popularity, especially among couples marrying later in life or entering second marriages. These agreements help preserve independently accumulated assets and ensure fair distribution to their own children. While these measures come with legal fees, they can be minimal compared to the value of the assets at stake. Ultimately, the intersection of marital status and financial planning highlights the need for thoughtful consideration of both personal and fiscal implications.