While many people plan for significant life events, few, if any, plan on the emotional and financial impact of divorce. Yet planning for a separation is important when dealing with the major changes that will affect a couples’ financial circumstance.
Data gathered by the Australian Bureau of Statistics indicates that 49,000 marriages end in divorce in Australia each year. 1 Of these, nearly 50 per cent involve children under the age of 18. 2 Under Australian law, assets such as the family home, other properties, businesses, investments, savings and superannuation are all eligible for division between a couple.
3 When you consider the rules and legislation governing each of these areas, it quickly becomes evident just how complex divorce can be. The need for professional advice before, during and after a separation is essential in dealing with your assets as well as creating immediate and long-term financial security, especially where children are involved.
Who do I turn to?
Certainly, a lawyer is necessary and can guide you through the divorce process and explain the law. Similarly, an accountant can provide essential tax advice. But gaining support from a financial adviser, who has a top-down view of your entire financial position and the potential impact of a separation, is critical.
Dividing assets like superannuation, savings and investments can be very complex and is often made all the more challenging due to heightened emotions and anxiety involved. This is not the time to go it alone. With detailed knowledge of your existing asset structure, investments and estate plan, your adviser can give you the tailored advice you need.
In fact, your adviser can not only work closely with other external parties, but can also help you manage the whole process and coordinate the many professionals involved, such as lawyers,
accountants and even counsellors.
How will a financial adviser work with me?
Regardless of the level of income earned within the relationship, your financial status and position will have changed after a divorce. Often one person might end up with greater assets, but due to custody arrangements may need to work less and receive a lower income, making it difficult to meet day-to-day expenses.
Your financial adviser can help assess your new level of income and expenses to re-establish your short and longer-term financial goals. At a more detailed level, your adviser will also consider a wider gamut of issues such as funding your children’s education, splitting and transferring your investments
and superannuation, review life insurance policies, estate planning considerations and wills to make sure they reflect your changed circumstances.
When should I seek advice?
With divorce, it’s a case of the sooner, the better. At such an emotional time, it is easy to become overwhelmed by all the decisions that need to be made. While divorce settlements are largely financial, there is a huge toll on everyone involved.
Your adviser can explain the benefits and risks of each financial decision and draw together an accurate picture of your current position. This can help you reach a settlement quicker and with a more realistic idea of your new financial position.
Talking to your adviser can help you feel prepared and better able to find solutions that avoid disrupting the lives of children who may be involved. It can also provide better financial outcomes than merely liquidating assets or splitting them down the middle. Lara’s experience Jake and Lara had been married for 12 years with two young children in primary school. While the couple had both been working after the children began school, they had few assets beyond their superannuation and a joint mortgage on the family home.
After some major problems, they decided to divorce. However, Lara was concerned that she would not be able to support the children and herself after the split. While she and Jake had agreed on joint custody of the children, they were unsure as to how to split their assets or what to do with the family home.
Lara’s financial adviser demonstrated that with her income and the probable settlement, it would be unlikely for her to take on the present mortgage, but could buy a smaller home, with a much-reduced mortgage, for her and the children. At the same time, with the help of her lawyer, Lara was able to settle with Jake for a larger portion of the house sale – to be invested into her superannuation – reflecting her years spent at home when the children were toddlers. Her adviser was also able to advise her on government assistance that might be available for a single parent with young children.
1 Australian Bureau of Statistics – Marriages and Divorces, Australia, 2011, viewed 17 December 2012, http://www.abs.gov.au/ausstats/abs@.nsf/Products/907892A4FCF3EDB0CA257AC50011317A?opendocument
2 Ibid http://www.abs.gov.au/ausstats/abs@.nsf/Products/907892A4FCF3EDB0CA257AC50011317A?opendocument
3 Law Council of Australia, Family law section, viewed 20 December 2012, http://www.familylawsection.org.au/pages/content.asp?plid=1