Dealing with divorce financially
Written and accurate as at: Sep 24, 2020 Current Stats & Facts
The pressure of lockdowns, social distancing and financial stresses during the global pandemic, has placed increased strain on relationships, causing many relationship breakdowns.
Divorce can be a stressful, heartbreaking 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 divorce generally depend on how amicable you are and whether you can come to an 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.
If matters do go to Court then a Judge decides on a 'fair and equitable' split of a couple's assets, taking into consideration:
- the role of each spouse in the relationship, the financial contributions made during 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.
This article guides 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 your starting point. 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 essential 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 in identifying what your necessities are and where you can save. Our Budget Planner Calculator can help 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 vital to ensure you have the right strategy in place for your superannuation. Superannuation benefits don't automatically form part of your estate in the event that you were to pass away, so it's also essential 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 cash flow 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.
Make an appointment 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 some people in your network of friends, family and professional advisers have been through a divorce and could provide you with advice and support.