There’s no denying it: divorce is hard. Having seen clients and close friends go through it over the years, I’ve seen the emotional and financial strain as couples work through the many decisions needed to go their separate ways.
A lawyer friend of mine once said, “Think of how much you spent on your wedding. You can expect to pay the same for your divorce.” Ouch. As well as emotional and legal support, it’s important to seek help from a licensed, divorce specialising, financial adviser to ensure the best possible financial outcome.
Getting it wrong
A client of mine, Liz, knew what she wanted in her divorce settlement and believed she was getting a ‘good deal’. Liz discussed her ideas with me before finalisation and, boy, was I glad she did. There was so much Liz had not understood. When I assessed the couple’s joint assets, I found a $200,000 discrepancy.
Liz had worked out her settlement with a relatively typical split, but the balances were not weighed correctly. She hadn’t considered the value of assets in the context of her needs, now and in the future. Based on her income and expenses, Liz would have had to sell some assets soon. Together, we worked to manage her assets more strategically, minimising taxes and costs to make the money stretch further for longer.
Ask yourself: will I have enough? How will the value of each asset change? What will my income look like in five or 10 years? Will I be financially secure? Answering these questions will help support your position with solid data.
What is a projection and why do you need it?
Dividing assets in a divorce is not just about percentages.
As well as looking at your current financial needs, you need to consider your future needs, as well as how the value of assets could change over time.
A financial adviser will work with you to examine your current position and future needs, to build a financial model that will be considered as part of the settlement. This is known as a financial projection, and if you don’t do this before you sign on the dotted line, you risk losing out long-term.
Analysing income sources
Let’s face it, you need an income. You need a roof over your head, food on the table, and bills paid. You need money for legal, financial and other services to help you through the divorce.
This is much easier if you’re working – but is it enough? Income options may include salary, child support, spousal maintenance, investment income, Centrelink support and the Family Tax Benefit.
Be careful about relying on any one source of ongoing income. What if your child support or spousal maintenance payments stop? What happens if you’re receiving part of an ongoing pension payment and your ex passes away?
Understand the value of your assets over time
Most people measure assets on their current value but don’t consider the long-term implications. If you end up with the wrong assets such as a property that doesn’t generate income, you could be losing income or capital growth on investments.
Work with your financial adviser to define your pool of assets, their value and any associated debts.
Assessing the status quo and putting it on paper – warts and all – gives you a solid foundation for working out what you want your financial future to look like and which assets will help you achieve it.
Get independent financial advice from a divorce specialist
I’ve seen people make the mistake of not getting financial advice before they settle, only to realise they haven’t achieved the outcome they wanted.
If you are going through or contemplating a divorce, seek financial advice before you settle. It could make all the difference in securing your financial future.
The Carousel would like to thank Helen Baker for her article.
Helen Baker is a licenced Australian financial adviser and author of two books: One Your Own Two Feet – Steady Steps to Women’s Financial Independence and On Your Own Two Feet Divorce – Your Survive and Thrive Financial Guide. Helen is among the 1% of financial planners who holds a master’s degree in the field. Find out more at www.onyourowntwofeet.com.au