Securing Your Finances After Divorce & Separation

Preserving your finances after a divorce or separation is absolutely key. In this guest blog Lucy Taylor, a Partner at Evelyn Partners Investment Management LLP, explains how she and her team at Evelyn Partners support the investment strategies of clients who have been through a divorce or separation.

As the Great British Bake Off reached its conclusion last night, we are reminded of the comfort that some of us found in baking banana bread during lockdown and of course the satisfaction of making the perfect crumble to go with Sunday lunch after a blustery autumnal walk. Although all of our requirements and tastes are slightly different, a cake is doomed to fail without certain vital ingredients.

Approaching finances after a divorce or separation can be daunting and clients should look for a practical and compassionate investment partner. That said, it’s important to find an adviser with expertise in this area that doesn’t sugar-coat the financial realities and responsibilities of this pivotal time for you and your family and with whom you can embark on the path to agreeing and implementing a successful investment plan.

In the investment world, it is key to have the confidence to embrace uncertainty. Equally, it’s helpful to build a clear plan so you can  be confident about your financial future, after divorce. Cashflow modelling is a tool used by financial planners to forecast your future finances. It shows you how much money you could have in the future and whether you are on track to achieve your goals, helping to answer questions such as ‘do I have enough money to maintain my lifestyle?’. You could say that tools like this help to ensure that the bake is not removed from the oven too soon, and that the ingredients have time to work together to do their job!In the financial world, compound interest – the 8th wonder of the world according to Einstein “He who understands it, earns  it … he who doesn’t … pays it” – can be likened to a raising agent without which you are unlikely to succeed. We understand that at times investing might feel daunting and counter-intuitive but it’s important that you can be confident in your long-term strategy, thus resisting the temptation to open the oven door too early!

As my children will attest, I am not much of a baker, but I do have a cupboard full of ingredients and some splattered, trusted recipe books that don’t let me down when faced with a last-minute request for something to take to school the following day! At Evelyn Partners we have an array of investment ingredients at our fingertips. The icing on the top is our open and enjoyable relationships with our clients which we believe give us the best chance of getting the financial recipe right in the short, medium and longer-term as we plan for future life events and navigate the inevitable investment cycles ahead.

I am now going to step out of the kitchen and imagine a conversation (over a hot drink and a slice of cake) about how we’re investing for our clients today, especially after a period of so much change. The good news is that, following such a large jump in interest rate expectations (UK interest rates are now at 3%, a level not seen for 14 years – source: Trading Economics) this year we are able to look at Fixed income and other cash alternative investments to achieve tax-efficient and low-risk investment returns, without taking any equity risk.

Now onto the less good news. The economy is heading into recession as double-digit inflation squeezes real incomes. We do not underestimate the magnitude of headwinds still facing global markets, including the potential for further deterioration of geopolitical risk. In particular, the UK faces a dangerous cocktail of elevated inflation, tighter monetary policy, and contractionary fiscal policy, driven by recent events so these Fixed Income options have merit for those looking to avoid the heat of equity investment.

As long as you’re happy to invest a portion of your money for a long period of time (thinking ten years or longer), and you’re comfortable taking risk with your investments, then equity investments may present an interesting opportunity from here. This is because markets have now fallen back to below their 20-year average valuation levels and are therefore already pricing in a lot of bad news – source: Refinitiv. Equity investments may not wait for the news to get better before starting to recover and may only need some of the uncertainty to lift and the news to look unlikely to continue to get worse (for example signs of interest rate expectations peaking or at least stabilising). In baking parlance this is akin to a cake continuing to firm up as it cools down (and perhaps being at its most delicious still warm from the oven!)

We are mindful that company’s earnings are likely to suffer as we move into the coming recession, and in some more economically sensitive areas (for example leisure and hospitality) we would like to see how earnings progress over the reporting periods ahead before allocating capital. For now, we are of course all trying to cut our spending so that we can afford to cook dinner and keep the heating on. This does not bode well for any spending on things we want over basic needs. As a result, the equity ingredients that we are favouring are in sectors like healthcare, consumer staples and utilities. We also like commodity-related stocks (for example in the oil and gas sector) which are supported by elevated free cash flows from capital expenditure discipline and high energy prices. Ultimately, it must always be a recipe that suits your needs and preferences and we can adapt it when clients have particular areas they’d like to exclude or to positively support and this is always a fascinating discussion at the early stages of building our plan.

Over the medium and longer term, we favour investing where we see long-term tailwinds; for example, via renewable energy infrastructure which will continue to receive much focus as Europe rushes to improve energy security. We expect demand to remain strong for renewable generators, rail infrastructure, building efficiency and the electrification of transport systems.

A few final crumbs remain, over which I’d like to reiterate that it is key to find an Investment Manager who you trust and who speaks your language, and a team who you can work with to define what is important to you, and who can bring the appropriate recipe to life (without being too dry!)

Lucy Taylor is a Partner at Evelyn Partners Investment Management LLP, specialising in Investment Management. She has managed portfolios for private clients, their pensions, charities and family trusts for 25 years. Lucy is a Graduate of Durham University where she read Economics & Economic History. Lucy sits on the Investment Process Committee for the Group. Outside work, she enjoys a variety of hobbies and is qualified to teach mindfulness to children. Lucy has been an independent Trustee and Investment Committee member for a Charity since 2010 and an Adviser to schools and educational charities regarding bursary programmes.

This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can  be taken for any loss arising from action  taken or refrained  from on the basis of this publication. Details correct at time of writing.

The value of an investment may go down  as well as up and you may  get  back less than you originally invested.

Past performance is not a guide to future performance.

Issued by Evelyn Partners Investment Management LLP. Authorised and regulated by the Financial Conduct Authority. The title ‘Partner’ does not mean that the individual is necessarily a partner of Evelyn Partners Investment Management LLP. For a full list of LLP partners, please refer to Companies House or request directly from Evelyn Partners.