Protecting your finances during divorce can be difficult, where emotions are running high.
In a fairy-tale kind of world, a fairy godmother could wave her magic wand and make a divorce neat and painless. But because this is no fairy-tale world, the reality is that we often need to utilise the skills and experience of magicians of a different kind – financial planners and lawyers. When it comes to protecting your finances during divorce, it seems that preparation is key for a successful settlement.
It may be a good idea to seek advice before filing divorce papers so that the understand the financial and legal implications. Because emotion is so often the basis for filing for divorce, it may be helpful to see these three professionals first: A psychologist to help you make sure that you are making a clear-headed choice, a certified financial planner to outline the financial implications and help you in the task of protecting your finances, and a divorce lawyer who can prepare you for all that is to come. Making sure that they have no connection with any of your family already will pave the way for unbiased help and a greater assurance of confidentiality.
If there is no prenuptial agreement, knowing the rules of your state for division of assets can be very helpful. There are many things that may be taken into account depending on where you live, including what type of assets, income of each party at the time of marriage, the duration of the marriage itself, contributions made during the marriage, child custody arrangements, loss of benefits and likely future financial capability.
Proceed With Caution and Clarity
While you’re thinking this through it’s also good to be aware and take stock of life insurance policies and superannuation. Retirement is closer than we realise and it’s important to know if there are any pensions you might be entitled to. Will you be able to continue paying for private health insurance if you separate? You may need to do some revision of estate planning documents.What kind of financial trail have you left behind? Being pro-active about your financial habits now may help you to move through with more grace what might be a contentious divorce.
Why You Need Your Own Financial Adviser
Hiring your own financial adviser can make the difference between a feasible settlement and calamity. Often people hire their own lawyer, but neglect to have separate financial advice.
Melissa Montgomery-Fitzsimmons is both a financial planner and estate attorney. She wrote of one case where a woman was happy to get the family home in her divorce settlement—only later to discover that her husband had taken out a home equity loan to fund a high-risk investment. He had never told her about the loan, and his investment never reaped the rewards he had hoped for. The couple’s financial adviser, who was still working with both spouses, did not know that the husband had not told his wife about the home equity loan. The divorce left her owning a property that carried twice as much debt as the original mortgage, and she had difficulty making the payments. Her finances and credit were ruined.
It is very hard for one financial adviser to cater to two clients who are divorcing. Because divorce can bring such financial crossroads, it is imperative that you have someone with financial expertise in your corner.
It may be worth considering that women in general have less superannuation that men, due to time taken off work for family commitments. Women therefore should be mindful that their superannuation strategy may change following divorce.
Protecting your finances is not just about your day-to-day bank accounts, but your future, too.
Not All Assets are Created Equal
Often one spouse might lobby for the house while the other ends up with the liquid assets. The parent who takes main custody of the children will often request for ownership of the home because of emotional attachment and to provide continuity for the kids. A financial adviser would be able to help that partner see that ownership of the home may not be the fair trade they think it is. Assets like a home require upkeep, insurance and council rates whereas shares require very little ongoing investment, may increase in value and pay dividends. Your independent financial planner can help bring clarity to the situation. This is particularly necessary for those who have not really handled the finances in the past. Having a full understanding of your household’s finances can have a great impact on the settlement.
Protecting Your Finances
Separation and divorce can be a very traumatic time. Here are some first steps as suggested by the Australian Securities and Investments Commission you can take when thinking about protecting your finances.
Close off your joint accounts – Consider closing your joint account. Talk to your bank to establish your own account with your own pool of money, and make sure the other joint account holder can’t access it. Check that your pay is going into this account
Do a financial stocktake – List all your assets, and any debts or joint debts in your name.
Record your turning points – Note down the dates of your separation in a diary or notepad. You can use this when you apply for a divorce as proof that you have been separated for at least 12 months.
Cancel your redraw facility – Talk to your bank to cancel any redraw facility on your home loan to make sure your debts don’t grow.
Update your rental agreement – If your name is on the lease then you may be liable for any unpaid rent or damage caused by your partner.
Update your utility bills – If your name is on the account then you are liable for any unpaid bill.
Seek legal advice – Speak to a solicitor about separating property held in joint names, taking legal action, if property is held in your partner’s name, to prevent it being sold before the property settlement, and to update your will.
Protecting your finances is the right thing to do when preparing for a divorce.
You can speak to one of our experienced family lawyers for a free, 10-minute consultation. Please contact us today!