Financial Planning: Dealing with Divorce

Family Law: 18 March 2019

Divorce in most cases is a stressful experience affecting finances, living arrangements, household jobs, schedules and children. The legal process of divorce may also involve issues of spousal support, child custody, child support, distribution of property and division of debt. The cost and complexity of a divorce generally depends on how amicable you are and whether you can come to agreement on these matters.According to relationships Australia, 50% of couples sort their divorce out themselves with the help of Lawyers, mediation and out-of-court counselling.

45% make court applications, however most of these don't go to trial and are finalised by mediation or pure exhaustion.

5% of divorce applications are settled in court.

In the event that matters do go to Court then a Judge makes decision on 'fair and equitable' split of a couples assets, taking into consideration:

• The role of each spouse in the relationship including the financial contributions made during the duration of the relationship and the non-financial contributions made by home-maker or parental roles;
• The need to provide for children; and
• The future financial position of each spouse.

Rather than go into more specifics about how to obtain a divorce, this article is designed to help guide those in this situation to obtaining financial independence.  We've provided eight ways to help those facing divorce to adjust and get back on their feet.

1. Take a look at where you are now. You can't move forward until you know where you are moving from. In many relationships one person is usually in charge of managing the money, however the divorce process will require you to come to a Financial Agreement with your ex-spouse. Having a good understanding of your joint financial position can assist in this process.  To get started, collect information on all of your assets and liabilities, making a note of whose name they are in. These may include:

• Bank  and Credit Card Statements
• Mortgage and Other Personal Loan Statements
• Listing of Contents, Motor Vehicles, Boats, Caravans, Farm Equipment and other personal effects.
• Superannuation Statements
• Shares & Managed Investments
• Investment Property Details
• Family Trust information
• Information on any other assets including art, and collectables.
• Insurance policy information.

It's also important to have a good understanding of your joint income and expenses to help you better plan for the future. Documents that can assist with this include:

• Payslips and details of any incentive schemes
• Personal and Business Tax returns

2. Notify financial institutions where you have joint accounts of your intention to divorce. While doing this you could also open a new bank account in your own name to assist separating your finances going forward.

3. A budget will help you to adjust to a change in income and help plan for the future income you will need to cover your household and personal expenses. It may also assist you to identify what are your necessities and where savings can be made. Our Budget Calculator can assist with this.

4. Changes to your marital status and living arrangements may affect Centrelink payments you receive or could receive. An appointment with a Financial Information Service (FIS) officer can help you better understand the impact of your divorce or separation on current or prospective Centrelink entitlements.

5. A split of superannuation between you and your ex-spouse may form part of your financial settlement. If it does, then the money received will generally be required to remain within the superannuation environment, unless a condition of release can be met. Most likely your retirement plans and goals may change due to the divorce so it's important to ensure you have the right strategy in place for your superannuation. Superannuation benefits do not automatically form part of your estate in the event that you were to pass away so it's also important to review the nominated beneficiaries for your superannuation assets upon your passing. 

6. As with any other life event, divorce or separation will necessitate a review of your insurance needs. This includes your personal health insurance policies, general insurances (including home, contents and motor vehicle) and your personal insurances cover including Life, Total & Permanent Disability, Trauma and Income Protection cover. Insurances are designed to protect you and your family in the event of unforeseen circumstances. A change in income and financial position means the cover that you have in place may be inadequate. A review of these policies may also identify savings in premiums or better ways to structure cover (such as holding life insurance cover within super) to help you better manage your cashflow when on a reduced income. As with your superannuation, you may also wish to update your nominated beneficiary listed for your life insurance policies.

7. Now would also be an appropriate time to review your Estate Planning arrangements with a Solicitor to update your Will and grant Powers of Attorney if appropriate. You may also wish to consider the guardianship provisions you have nominated for your children.

8. Ask for help. You don't have to do it alone. According to the Australian Bureau of Statistics, around one- third of marriages in Australia end in divorce. In the United States, almost half of first marriages, 67 per cent of second marriages and 73 per cent of third marriages end in divorce. With statistics like this, it's more than likely that a number of people in your network of friends, family and professional advisers have been through a divorce and could provide you with advice and support.

Professional help in the form of counselling, legal advice, financial planning advice and advice from Centrelink's Financial Information Service (FIS) can help to explain your options and assist with the administration and paperwork. Professional Advice will help you navigate such rough periods towards a greater sense of financial independence.