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Insurance and Investments for Children Following Separation

By: Chris Nickson - Updated: 17 Aug 2015 | comments*Discuss
 
Separated Dad Insurance Investments Tax

Following a separation, you’ll find that there are a number of financial issues that need to be addressed. One is putting together a new financial future for yourself. Another is setting up finances to benefit your children, to help pay for university or other things – maybe even a deposit on a house. However, you can’t really begin on the second until your own finances have found an even keel.

Arranging an Insurance Policy

One thing you can do (and it might even be mandated in a separation or divorce agreement) is to set up an insurance policy with your children named as beneficiaries, so they’ll receive money if you die. That might seem morbid, but it’s just good sense. It means that, apart from what you leave them in your will, your children will receive some money.

How large a policy you take out depends a great deal on what you can afford, and that’s affected by your age and medical condition, along with other factors, such as whether you smoke or not. Take out the biggest policy you can comfortably afford. That might be small at first, but you can take out another or increase it later as your finances improve. At the same time, shop around for the best deals – there are plenty out there.

Good Investments

Investing money to help your children pay for university, or to give them a down payment on a house, is one of the best and biggest things you can do for them financially. However, until you have the money to invest, you can’t really begin. Once you reach that stage, what are your best strategies? The main ones are an instant access savings account, which is secure, but pays a low rate of interest. ISAs or unit trusts, National Savings, investment bonds and cash deposit accounts all offer higher interest, but you can’t access the money for five years. Friendly society bonds bring a higher rate of return, while the stock market offers much higher returns but the latter is higher risk.

You might also consider equity income funds, fixed interest funds, or commercial property funds, done through an equity manager, although these still carry risks.

If you’re over 50 and want to pay for university for your children, another possible option is your pension, either by withdrawing cash or phasing your pension benefits. Check first; these might not be possible on your particular pension, or there might be strict conditions attached.

Taxes

Obviously, when you invest for your children, you want the taxman to take the smallest possible bite out of your money. If the income is less than £100 p.a., it’s classed as the child’s income. More than that, and it’s classed as your income.

What you might consider with your investments, whatever they are, is setting up what’s called a bare trust. Under this you hold investments on behalf of someone else (your children, in this case). For tax purposes, in most cases bare trusts are considered in the name of the beneficiary (i.e. your child). Additionally, they may become exempt from Inheritance Tax. Legally, although just designating an account as being on behalf of your children, the best course is to make a formal declaration of a trust to the tax people, which is generally accomplished through a solicitor.

Check out the Separated Dads Forum... It's a great resource where you can ask for advice on topics including Child Access, Maintenance, CAFCASS, Fathers Rights, Court, Behaviour or simply to have a chat with other dads.

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@Kat - I'm afraid this is one of the most difficult loopholes for resident parents to overcome. There really is little you can do if his accountant is registering little of no income. I can only suggest that you keep taking it back to the CMS if you think he is earning more money than he is declaring.
Ella - 15-Apr-15 @ 1:53 PM
My ex won't pay for his daughter n sadly I've had to really encourage him to b part of her life... I did speak child maintance options who discouraged me from chasing him as self employed I'll get £5.... This man has money through his hands.... But I've seen his accounts n they're on zilch... His business is in someone else's name does this mean I can't do anything?im struggling, his daughter grows so quick n at 3 already needs a new wardrobe of age 6/7clothes for her height... I managed to kit her out a boot fairs wen in smaller clothes but as she grows this is increasingly more difficult.. I'm lost n feel he needs to help..he never has and it's not fair..anyone have any advice?
Kat - 13-Apr-15 @ 12:40 AM
What does my fiancé do? He has four kidsone to one mum and three to another he gets 300 per week and pays each child £20 per week now he lives with me and I have a child but not with him but he supports my child as well his three kids stay over night Friday Saturday and until 6 pm his ex demands he gives her cash in hand so it never gets recorded if she ever decides to tell csa he never pays her so what should he be paying as he lives with me and my child now too
Goddersto one - 7-Jun-14 @ 12:26 AM
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