What are your first steps?
What help is available after separation? How do you start to map your financial future when your relationship ends? What are the first steps you need to take? What should you be prepared for?
No matter how a couple have arrived at the decision to separate, dividing up their financial lives can be a challenge. At Invest Blue, we have worked with many people in this situation.
In many partnerships, one person tends to take the lead in managing financial affairs. That can leave the other in the dark when it comes to the joint financial commitments and behind on understanding how to manage their financial affairs. We can help you regain financial clarity and support your confidence in this area, whether you have been the one to manage the finances or not.
At all times, our main objective when working with a client going through separation or divorce is to help that person understand exactly what their current situation is, what they have and what they owe; what they truly want for their future and what is most important to them, and how to build the bridge to get there.
Where should you start?
What decisions need to be made now, what can wait
In the early stages of separation, each person has to start down their own financial path. There are some immediate actions you will want to take.
Financial Adviser and Director of Invest Blue Steve Fort, recommends taking things one step at a time.
“When a person is faced with the reality of separation, they can be driven by a desire to get it all over with as quickly as possible. We recommend taking time to work through the financial aspects of separation, starting with your short term needs first. Be willing to explore your options without preconceived ideas of what must happen.”
ASIC’s MoneySmart site has a smart checklist of things to consider:
Document your situation including:
- your separation date,
- assets/valuation documents,
- income/tax returns/payslips,
- insurance policies,
- bank accounts, etc.
A Financial Adviser can help you with many of these first steps. Most of the time, the decision to separate will mean one party needs to find new accommodation. Once you have made that decision:
- If renting, update lease agreements to reflect who remains and who is leaving.
- Ensure utilities also reflect the person staying if one party is staying in the current residence.
The next step is to start re-assessing your future. So much of the struggle both parties face in a separation stems from fear of what lies ahead. When you have been managing your financial lives together you have likely been doing a lot of sharing and compromise. Taking your first financial steps on your own will mean different income, expenses, assets and liabilities; but it will also involve different goals and objectives. Whether you have been the financial manager in the family or not, the work required here can be made so much easier with a Financial Adviser. This phase will require you to:
- Be clear about your new balance sheet. What assets and liabilities remain with you?
- Be clear about your new budget. What will your income be? What expenses will you have?
- Clarify your money to its importance. Having shared your life with someone else, you have likely been sharing and comprising on the goals you had. Now is the time to reflect on what matters most to you.
- Understand what is possible. When you have all the facts and figures nutted out, it is time to start prioritizing and planning. Knowing what you can afford, what your options are, and what matters most to you will help you understand your new best possible life.
If you want to get started now, get in touch and we will have an adviser get back to you.
What can wait?
There will be some decisions and actions that have to wait. Big life choices require research and time for consideration.
Upon the initial separation, there may be work to be done with accountants, mediators, or lawyers. That will take time. Financial advice can help you get the ball rolling, but ultimately decisions around your settlement agreement will involve additional parties and time.
We also know from experience that trying to make decisions that impact your long term future when you are in the initial period of upheaval or shock is very difficult at best. While it may not feel like it in the short term, there are likely options available that need considering and it is better to keep long-term alternatives available.
Learn more about how financial advice can help at this time by listening to Steve Fort chat with Jack Whelan from the Separation Guide.
Separating finances after a separation
Many couples are surprised to learn that upon separation, they share more than they realised. Things like Superannuation and HECS debts, for example, may be considered jointly regardless of whose name they are in.
As part of your division of assets and liabilities, you may agree to transfer a joint debt to one party. Unless ordered by a Court, your bank is not automatically required to agree to honour that arrangement. Your bank will want to view the proposed settlement as a new agreement and make their own assessment as to the viability of that arrangement. This can take time and will likely require all the information and paperwork a new application demands.
You do not give up your right to a share in the property by being the one to move out. The way property is shared or divided will depend on your situation and agreements. Inevitably, each person will end up with less than they had as a couple. Sustainability of assets like the family home needs to be tested, can one person afford to own it with a single income?
Superannuation is included in the pool of property to be divided. Even if one partner hasn’t contributed to superannuation for many years, they may still be entitled to some of the other’s super.
“Decisions around splitting super and how that factors into a settlement agreement need to be considered as it is a long-term play. Compared with other assets, Super is a restrictive asset in terms of when you can access it.”
Learn more about how superannuation is treated during separation.
Separation may change the level of insurance cover you need. Often your cover recommendations are based on income, debt and dependents. Starting a financial life on your own will more than likely change those variables. Your insurance policies will also have a nominated beneficiary. If that is your former partner you may want to update that.
Each state has its own rules about Wills and Estate Plans, but being separated may not automatically change or cancel existing arrangements. You will need to work with a solicitor to update these documents and Powers of Attorney to reflect your new preferences.
Tips for managing your finances during separation
When things go well, what does that look like?
“When we have had a successful meeting with a client in this situation, the overall feeling they walk out with is hope. They see they have choices and that despite the change, they see there is room for a positive future ahead of them.” Says Steve Fort.
The law does not take into account who is at fault for a relationship breakdown but instead considers:
- What the couple own and owe
- What each person has contributed to the joint financial picture (either financially or through effort before, during and after the end of the relationship)
- The current and likely factors affecting the parties (i.e. age, income potential, health, responsibilities)
- What is just and equitable given the above
In our experience, the couples that manage their way through this period:
- Accept the situation they are in
- Recognise that they have choices and give themselves time to make decisions
- Are aware that good advice comes from comprehensive information and are able to provide relevant details
- Have a broad support network they can talk to, learn from and start to get new clarity about what they want and need from their new life
- Manage expectations about what they can cope with, where they need help, what can be dealt with straight away and what needs time
- Look after their health – this is a stressful time and good health will help to manage the increase in pressures
- Remain focused on the practicality in the division of property rather than percentage entitlement
- Are able to work through the process with civility and respect with their former partner
When things don’t go well, what does that look like?
If trust and compromised balance can not be achieved on your own or through mediation, the legal path lies ahead. This reduces what is available to be shared between the two parties, extends the time it will take to find a resolution and adds considerable stress and pressure to all parties.
The costs of separation
Separation to divorce can take 12-24 months. If you go down a legal path and the courts are involved, it can take three years or more.
Engaging legal advice during the separation through to mediation can cost 10’s of thousands of dollars. If you do go to court, expect to start at $20,000 and be prepared for $100’s of thousands of dollars. Rather than splitting net worth between two parties, you will be splitting it four ways with both parties engaging legal support.
Your best possible life
There is no doubt that the future you were planning together will now have to change. Whether you view that as a positive or negative today, we have found over the years that there is a positive future ahead for both parties. One of the biggest risks to that is how each party handles the separation and the degree to which emotion and principle drive demand.
How advice can help
One of the biggest benefits a Financial Adviser can bring to this challenging time is objectivity. You will likely have many issues to attend to, be overwhelmed with decisions to make and may be unaware of your options. A Financial Adviser can help you avoid emotionally driven decisions by bringing you clear, researched and considered options.
In our experience and work with The Separation Guide, we have learned that for most couples, the process of separation becomes easier when they have support.
“It is a confusing and highly complex time in a person’s life”, reflects Steve Fort. “There are often so many people involved, the former couple and potentially their children, but also friends and family will have ideas and opinions. By working with professionals, you are offered an objective and an informed view of your reality. Financial advice is an educative process that, irrespective of your financial literacy coming in, provides you with the information and tools to make smart financial decisions for your life ahead. We allow for reality testing and objective decision making.”
Support comes in many forms, through personal networks as well as professional.
A financial adviser can help you to:
- Clarify your current financial position
- Help you to simplify what is most important about money to you
- Prioritise your financial and life goals
- Set up a financial plan to achieve your goals and demonstrate what is possible
- Help you make choices about your financial life that are in line with your personal values and goals
- Ensure you have the right financial tools and products to suit your needs and support you in using them effectively
- Provide coaching and knowledge around financial literacy
- Help you create a budget that aligns to your new income and expense requirements
- Help you with paperwork to update beneficiaries (insurance, super, etc.)
- Additional professional support includes:
- Mediation or Legal
- Counselling or Psychology
If you are preparing for or in the midst of a separation, please reach out. We are here for you and more than happy to sit down and discuss your situation. There is no obligation to proceed after a first meeting so if it doesn’t feel right, you can continue searching for the right fit. Get in touch with The Separation Guide for more resources and support.
Get in touch with us today or Book an Appointment with an Advisor.
What you need to know
This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.