Divorce or Separation - Untying the Knot
Once you first get over the emotional stress of a separation, the financial realities are often not realized until it’s too late.
Some separations are amicable, and both parties, in many of these cases, are already financially independent and supporting the lifestyle they desire. Regrettably, in most cases, the most common scenario is that there is one main income earner who usually has the best understanding of the family’s finances.
In these situations, things tend to become spiteful as the reality of the financial imbalance hits home, sparking emotional reactions.
In this blog, I will recall some of my client’s remarks about being embroiled in break-ups and try to give some tips on how to manage the issue that will eventually arise.
This is a stressful time, no matter how well it’s handled, and the level of stress and anxiety clearly has an influence on how each party approaches and behaves in these situations.
Neither party is going to be in a better financial position immediately following a divorce. Having said that, things can be made easier by focusing on organizing the resources that are available, and each individual can create an independent future of their own.
“Your lifestyle will change dramatically. Prior to the divorce, we had large aspirations of the big house, overseas holidays, the fancy car, and know all that is in the past.” — Client
The person who has been financially dependent will most likely require the most support and coaching around managing finances; however, both parties will benefit from a professionally structured financial plan.
The breakup shouldn’t be a lifelong financial burden; with the right strategy and planning in place, the financial burden can be overcome.
More commonly, men are the primary income earners and are more likely to be in a stronger financial position. This is particularly true when it comes to superannuation. There is an increasing number of women who are the primary income earners and who are attaining high-income positions; thankfully, this inequality is changing over time.
Financial advisers are not usually the first port of call when it comes to discussing your emotional legal concerns, but financial planners can provide both immediate and long-term assistance.
“I should’ve followed my lawyer's advice much earlier in the piece. I truly thought that the settlement would be amicable; that’s how it started out, but then he really made things difficult. I was quite shocked, unprepared, and naive.” — Client
The best way to circumvent these financial battles is to put in place preventive measures, like ensuring both signatures are required for significant asset sales.
It can be advantageous to have separate accounts (in addition to a joint account for family expenses); these should be accessible and available to each party for their personal use. While things are going well in the relationship, this allows for guilt-free spending.
If you really want that something and have saved it up in your personal spending account, you can buy it without impacting the family budget.
The ideal scenario in a separation should be that each party has reasonable savings to cover costs in the immediate weeks after a marriage breaks down.
Unfortunately, there are common financial outcomes of a marriage breakup that effect both the primary income earner and the financial dependent partner.
In circumstances where the dependent partner isn’t expecting the divorce, they are mostly unprepared for financial independence, and they will experience an array of immediate and longer-term issues.
“I needed to come to terms with renting, which was complicated further because I wasn’t sure whether or not I would get custody of our children.” — Client
Children complicate any divorce. Ideally, the parents have the presence of mind to put their children’s welfare above any petty point-scoring, but this isn’t always the case.
Loss of funding for education, general financial hardship, and changes to living and schooling circumstances are all issues that should be protected over and above any relationship problems.
If things turn really nasty, control of the finances and assets can become a huge problem, with the controller able to withdraw, sell, or otherwise restrict the other partner from funds that should be shared.
The financial controller won’t always be the primary income earner, but if they are, the dependent partner can find themselves without any of the family assets and without any obvious sources of income.
While the legal process can eventually help to reverse much of the damage, that won’t pay the bills in the immediate aftermath of a separation. The lack of income or access to funds in the immediate aftermath of separation can also
make it hard to provide the bond and advance rent needed to secure a property.
In addition to the immediate lack of income and then ongoing difficulty gaining access to sufficient money, the dependent partner can lack the resources and skills to get into a rental property if they are forced out of the former shared home.
“She hopped online and took big sums of cash days before even talking to me about separation! The online world has made this too easy.” — Client
Many of the financial problems that both parties face right from the beginning of the process
As a result of poor understanding of the numbers, I can't stress enough that it is vitally important to seek professional advice as soon as possible.
Waiting until after settlement could result in you agreeing to an amount that is totally inadequate for your future needs.
A good adviser will help financially model the different long-term outcomes of different settlement options. They may be able to work with your family lawyer or mediator to ensure an equitable outcome. This can be particularly important with property settlements because, once finalized, you'll have limited ability to turn back the clock, so it's important to get right from the outset.
If you or someone you know is navigating through the challenging terrain of separation and needs a thorough grasp of the lasting impact of their potential binding financial agreements, we encourage you to reach out to us before you sign. You can contact us via our webpage or by phone at 1300 459 101.
