Finance matters when you are considering divorce. There’s no doubt about it, divorce is costly. It’s costly emotionally, mentally, physically and materially. It is the breakdown of a relationship where two people were sharing many things together, including finances. But there are some finance matters it is good to be aware of when divorcing to help you prepare for the road ahead.
Ken Moraif, founder and senior advisor of Dallas-based financial firm Money Matters, says, “Financially, there are few things more devastating than a divorce.” That’s why finance matters so much. That a split would be negative financially makes sense when you think about the fact that two people who were sharing a pool of assets, now need to divide that asset pool up. Although it won’t necessarily be a 50/50 split, the maths makes it fairly clear that neither partner will be better off in the short term compared to when they were jointly sharing the asset pool, income and any household expenses. It’s a simplistic way of looking at it but this is generally the case for the majority of couples who are separating.
Finance Matters: Divorce Can Be Financially Devastating
Although a very coarse way of viewing it, but a reality for many, a divorce basically wipes out half of your assets. At a time which is already stressful relationally, the financial toll can be close to devastating for some. ‘Maree’ hasn’t had a hairdresser cut her hair for more than five years and her ‘new’ clothes are passed on from a friend. Divorce left Maree shattered. Although she had been the main income earner, the court ordered the assets to be split 50/50 because her husband had been a stay-at-home dad. The children live with her and when it now comes to finding $20 for a surprise school excursion she says, “I just don’t have a spare $20. I’ve always worked with a budget, but there’s no buffer any more.”
How To Be More Prepared
If you and your spouse are considering separating or preparing to divorce, then finance matters. Here is some information for you that might be helpful regarding your finances.
One person may be blindsided. The Australian Bureau of Statistics figures show that over the last 20 years, the proportion of joint applications for divorce has been increasing, while the proportion of applications by a one applicant has been decreasing. Even though this is so, there are still partners that are going to be quite under-prepared for a divorce. This can put you on the backfoot if you’re found in that position, but rest assured you are not alone and there are excellent professionals you can consult to help you prepare for the financial road ahead. If you’re the partner who is instigating the divorce – play fair. Conflict, manipulation and power-plays do not make you a winner.
Organise a ‘team’ to help you. If you’re able to call on the expertise of any professionals then do. Having trusted advisors by your side is important in making wise decisions that may have an effect years into the future. A financial advisor, accountant and family lawyer will all have professional knowledge and experience in these situations. Most of us only have a very basic understanding of our finances. It’s important to have that improved or at least have people to call on who understand the tax implications of holding onto the family home or whether receiving a lump sum of money in place of a car will affect your family assistance payments from Centrelink. What we think might seem like a good financial deal may not be the best outcome for us.
Not everyone can afford an array of paid professionals, but there are some great community based seminars or affordable online courses that can help you to increase your knowledge of budgeting well and how to reduce your debt. There are also friends whose experience you can draw upon. Common sense and a wise head can go a long way when you’re feeling particularly fragile and unsure.
Organise all of your important documents. This will include things like bank and credit card statements, tax returns, superannuation statements – anything you think might be helpful in getting a clear picture of your financial situation. Also any title documents for homes or cars or other assets like those that you may own. It’s not just to get a snapshot of how things are now, but also to check that nothing dodgy has been going on the last few years. When trying to organise your finance matters, a thorough understanding of your situation will help you get through it.
Ken Moraif says his practice has encountered situations in which one spouse was planning a divorce and started funneling money out of a joint account long before announcing the intention to split. Although it’s nice to find that’s not the case, it’s best to be as shrewd as possible when looking after yourself.
Assets aren’t necessarily split 50/50. In Australia, couples are encouraged to mediate before going to court to settle a divorce. You may end up negotiating an agreement on how to settle your property without having to go to court. This is the best scenario for most people as it’s the least conflict driven and least costly. But if you can’t agree, then a court will help decide for you both. A 50/50 split is not guaranteed. Many factors are taken into consideration and the court decides what is most fair to each particular couple who are separating. A stay-at-home mother of 20 years is likely to be entitled to some of her husband’s superannuation. A father who has majority custody of a special needs child is more likely to retain possession of a home that was designed to help care for the child. Seeking the advice of a family lawyer to help you negotiate a fair settlement is a very good idea.
Additional expenses are certain. Separating usually means one person moving out of the marital home, which requires the setting up of another home and all the costs associated with that.
Create a budget based on your new circumstances. This will be based on your estimated income and your expenses. You may not be able to live in the same way you did before and so adjustments need to be made. Don’t underestimate your expenses. Being realistic from the outset will help you a lot more in the long term.
Remember that superannuation can be split. This is especially important for the partner who may have been out of the workforce the most during your time together. It’s often a mum who has had a much lower paying casual job she’s juggled between having children. A 2013 study by Suncorp Insurance found that fewer than one in six divorcees took their partner’s superannuation into account when negotiating the settlement. Women particularly need to be aware of this as they are often left in a worse financial position long term then their ex-husbands.
At Divorce Lawyers Brisbane we understand how emotionally challenging negotiating a divorce property settlement is. We know that finance matters more than usual at this time of your life. We can help by guiding you through it. We offer a free, 10-minute phone consultation. Please contact us today!