How The Budget Influences Divorce, Financial Settlements And Family Wealth Planning

Divorce reshapes not only a relationship but also the financial life that has grown around it. The family home, savings, pensions and long-term plans that once supported one household must suddenly stretch to support two. When tax rules shift at the same time, the landscape becomes more complex. Couples who are separating, and families thinking about how best to protect wealth for the future, now need to navigate a system where familiar assumptions about property, pensions and inheritance have fundamentally changed.

The recent Budget places fresh weight on some assets and alters the value of others, which means financial settlements cannot simply follow the logic of previous years. From changes to rental property taxation, to new charges on high-value homes, to the most significant shift in pension taxation for a generation, the Budget affects how assets are negotiated, how fair outcomes are reached and how families plan for long-term security. Understanding these changes matters as much emotionally as it does financially, because clarity about the future is what allows people to rebuild with confidence.

Property

The family home often carries the deepest emotional weight in a divorce and, for most couples, it represents their most valuable asset. Decisions about whether one party can afford to keep the home, or whether it should be sold with the proceeds divided, already require careful thought. The Budget adds a further layer of complexity for a small but significant group of families whose homes exceed £2 million in value.

From April 2028, these properties will attract a High Value Council Tax Surcharge. The charge introduces a new ongoing cost that must be factored into affordability assessments. A spouse who may have been able to manage the usual mortgage and running costs on a single income may find the additional tax tips the balance. As a result, discussions about retaining the home may become more nuanced, particularly where the property is central to children's stability or one party's emotional connection.

For families who own investment properties or rental portfolios, the changes are more immediate. From April 2027, tax rates on rental income will rise by two percentage points across all bands. That adjustment reduces the net yield on rental assets. In a divorce settlement, the court looks not only at the capital value of an asset but also its capacity to produce income. A property that now generates lower post-tax income may carry a different weight within negotiations, and some couples may decide that selling or rebalancing their property holdings is more appropriate.

All of this underscores the importance of combining family law expertise with tax planning advice, so that negotiations reflect both the legal principles of fairness and the practical realities of long-term financial sustainability.

Pensions

While property is often the most visible asset, pensions are frequently the most valuable over a lifetime. They are also one of the most misunderstood in the context of divorce. Pension-sharing orders rely on a transfer value that holds distinct meaning within the pension system, but that value has always been shaped by the assumption that pensions fall outside the inheritance tax system.

From April 2027, that assumption falls away. Unused pension funds and death benefits will be brought into the taxable estate and may incur inheritance tax at 40 per cent. This change alters the true long-term value of pension assets. A pension that was once treated as an efficient, inheritance-friendly vehicle now carries future tax exposure that affects both divorcing spouses.

This shift matters in several ways. First, the tax treatment influences how pensions should be weighed against other assets in settlement discussions. A spouse receiving a large pension share must now think not only about retirement income but about the estate planning implications that follow. Second, the change affects how each party plans after the settlement. Drawing benefits earlier, making gifts from pension income or rethinking how different pots are balanced all carry new importance.

The Budget also introduces a cap of £2,000 per year on salary-sacrifice pension contributions that qualify for national insurance relief from April 2029. This affects how quickly someone can rebuild their pension after divorce. For the spouse whose pension is lower (often because they stepped back from work to care for children) rebuilding on less efficient terms becomes harder. That reality may need to be reflected in how other assets are divided so that both parties retain a fair path to retirement security.

Nuptial agreements

Tax change always provides a reason to pause and reassess longstanding arrangements, and nuptial agreements are no exception. Prenuptial and postnuptial agreements offer clarity about how assets will be treated if a relationship ends, and the courts give them significant weight when they have been entered into freely, with full disclosure and independent advice, and where the terms are fair.

Many existing agreements were drafted at a time when pension wealth sat outside the inheritance tax system, rental property income carried different tax implications and the running costs of high-value homes were more predictable. These assumptions helped shape choices about what each party should retain or ring-fence. With the Budget altering those assumptions, couples may find their agreements no longer reflect the financial reality they intended to capture.

For couples preparing to marry, or for those in second marriages who want to protect children from previous relationships, tax changes should be part of the discussion from the outset. A nuptial agreement can ensure inherited wealth stays within the family line, that property subject to surcharges is allocated fairly and that pension assets, now potentially exposed to inheritance tax, are balanced against other resources in a way that meets both parties' expectations.

The value of these agreements lies not in predicting the future with precision but in ensuring that, as the tax landscape changes, both partners remain protected and understood.

Wealth across generations

The freeze on inheritance tax thresholds until 2031 means more estates will drift into the inheritance tax system as asset values rise. For families who have spent years building or preserving wealth, divorce can introduce fresh risks. If an inheritance is divided or redirected through a settlement, and then taxed again on death, the family may face a double erosion of its assets.

Nuptial agreements can play an important role here, but so can broader estate planning. For example, understanding how the Budget's pension changes interact with lifetime gifting, trust structures or long-term investment planning may help families preserve stability for the next generation. When divorce is part of the picture, these conversations become particularly important, ensuring that wealth is not unintentionally depleted through the combined effect of a settlement and future tax liabilities.

Navigating the road ahead

The complexities introduced by the Budget make this a moment for individuals and families to step back and look at their arrangements with clear eyes. Divorce, separation and remarriage are already moments of profound transition; when tax rules shift at the same time, the need for steady, informed advice becomes even more important.

For those currently separating, the first practical step is to ensure that every asset is evaluated in its true post-Budget context. That may mean revisiting the affordability of retaining the family home, obtaining revised projections on rental income or seeking updated actuarial input on pensions. Settlements reached without this information risk creating financial strain later on, even when agreed in good faith.

For couples who are together, this period offers an opportunity to future-proof their arrangements. A review of any existing prenuptial or postnuptial agreement can ensure it still reflects the realities of today's tax landscape. Where families have blended structures or significant inherited wealth, forward planning can help ensure that assets pass as intended, rather than being reshaped by unforeseen tax consequences.

What helps most is approaching these decisions with a sense of perspective. The Budget has altered the financial environment but not the underlying principles of fairness, security and care that guide a well-structured settlement or a well-designed wealth plan. With the right advice, it is entirely possible to navigate these changes with clarity and confidence.

We are here to support you through that process. Whether you are negotiating a settlement, reviewing long-term plans or considering how best to protect family wealth in light of the Budget, our family and private client teams can provide the joined-up guidance needed to move forward with certainty.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.