Cheryl and Brad seemed happy. They had two children, had finally finished building their dream home and were thinking about going on a world cruise. Unfortunately for Brad he was considering going on a cruise with someone other than Cheryl. After telling Cheryl he was not in love with her and hadn’t been for many years, their marriage dissolved and they became one of the 50,000 couples granted a divorce in Australia in 2011.
At 45, Cheryl felt emotionally shattered and feeling very vulnerable when she first came to see us. She needed to take control of her finances – something she’d always left to Brad. Although she had completed an undergraduate degree in her 20s and worked for a number of years, her ability to earn a decent income had dwindled as a result of stepping off the career ladder temporarily when she had children and not keeping her skills up-to-date.
While she was busy cooking, cleaning, doing school runs and generally keeping the household together, Brad’s career had gone from strength to strength. Not only was he able to earn a lot more now than back in his 20s, having had several promotions over the years, he’d also managed to complete an MBA during the course of their marriage.
I’ve seen this story – and many variations of it – many times. Leading ipac’s family law team, I have spent years helping women deal with the financial aftermath of separation and divorce. Regardless of how or why a marriage ends, one thing is certain: divorce ranks as one of the most devastating events in a woman’s lifetime.
Having to manage the finances can be extremely daunting when you’re dealing with emotional trauma. You need your wits about you to make rational decisions about your financial future.
Here are the top eight things to do when you’re contemplating – or going through – a divorce and property settlement.
- Seek advice early
When you are staring divorce in the face the picture might seem so bleak that you can’t think clearly. Seek advice from professionals and do it early. First, see a lawyer. They can explain the process and your options to you. They will be able to advise you on your realistic legal entitlements. Once you have a good understanding of that consider seeing a financial adviser with experience in family law. Good financial advice can help you to understand your finances and reduce your anxiety.
Property settlements may take a long time to resolve and during this time it’s helpful for people to understand their options within the parameters of the law. Scenario planning with a financial adviser can be helpful as it can provide a visual snapshot of a range of outcomes, such as how much you would have to live on week to week.
- Think long-term
Although it’s natural to be wrapped up with fear and worry about the immediate future, it’s important to focus on what you want longer-term. Where do you want to live? What do you want to do? Think about where you want to be five years from now – a lot can be achieved in that time. Make a plan and consider what you need to do to get there. This might mean going back to study, starting a business, travel, applying for jobs or furthering your career.
- Consider income sources
Generally speaking there are three major sources of income: income from assets; earnings from a job; and Government benefits.
Income from assets. If you are likely to receive assets in the settlement, think about what sort of income you can get from them. Consider whether you ought to keep or change them. For example, should you sell an investment property or keep it? Can you commence an income stream with your superannuation? It pays to seek professional financial advice before you make what could be life-changing decisions.
Earnings from a job. If you are not working, consider if you can get a job, what you can earn and /or what training you could do to re-enter the workforce earning more. A wise family lawyer once told me: the best thing a woman can come out of a divorce with is an ability to earn an income. Take action now to set yourself up for the future. Even if you are currently working, but are not on good money, look at what you could do to upskill and earn more.
Government benefits. As a newly single person, it’s worth investigating your Centrelink options and finding out your entitlements.
- Review your super
The Australian Bureau of Statistics says that over the past twenty years Australians are divorcing at an older age, so many divorcees are closer to retirement age than in the past. This means that you may have less time to build up your own retirement funds. One of the most important things to do when facing divorce is to review your superannuation. How much do you have? Is it enough? Is it in the right place? It may be that part of the property settlement includes a superannuation split whereby some of your super is allocated to your spouse or vice versa.
- Don’t rule out renting
One of the first considerations when a marriage is over is where you are going to live. Do you buy somewhere or rent? Should you keep the family home or sell it? These are important questions – and the answers largely will depend on what your settlement looks like. Many women want to stay in the family home but a few years down the track they have to sell it because they can’t afford it. They become asset rich and cash poor. While the notion of renting may be completely foreign for some, it may be worth considering. It’s not necessarily going to be forever – renting can be a good short-term solution while you get back on your financial feet, or for some it’s a longer-term fix and money can be invested in other ways.
- Draw up a spending plan
A spending plan puts you in control, empowering you to make good decisions. It’s vital to know what you can – and cannot – afford to spend. The key to a workable plan is to know your expenses inside-out and be honest with yourself about where you might cut back.
- Check insurances are in place and appropriate
Insurance is vitally important to protect you and any children you have. If something happens to you, you don’t want your children to be left in the lurch. Make sure you have the right insurance in place and the appropriate level of cover. The key insurances to consider are: life insurance; total and permanent disability (TPD) insurance; trauma insurance; and income protection insurance.
- Update your estate plan
This is important. The rules regarding the impact of divorce on a will vary state to state, but generally speaking it’s safest to speak with an estate planning lawyer as soon as possible. You may want to do a new will in contemplation of divorce. Don’t forget to also check who is the nominated beneficiary on your superannuation account as you may wish to make a change (in consultation with your estate planning lawyer).
Jane Campbell is a certified financial adviser, employed as the manager of Law Sector at ipac. ipac securities limited ABN 30 008 587 595 AFS Licence No. 234656
Any advice given is general only and has not taken into account your objectives, financial situation or needs. Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.