Change is a constant in our lives and money matters are no different.
Change and separation can be emotionally draining, but it doesn’t need to be financially draining as well. Be kind to yourself and find support and help wherever you can. Understanding your finances and the steps you need to take can help you gain more control through a period of change.
It’s important to have yourself covered and know your rights. A good family lawyer and a financial adviser on your side can help to take care of your needs and the needs of your children, if you have them.
You may, for the first time in your life, need to consider living as a single parent. You may find yourself having to sell the family home and moving to somewhere you never imagined you would be living.
Considering things like the cost of selling and buying a new property, owning versus renting, and whether you need to stay in the same area because your children are still at school, can be overwhelming.
In the midst of so much to think about, the most important thing to consider is how you are going to get through this in the most positive way.
Seeking professional advice can assist in determining your property entitlements and what your options are in relation to the ongoing care of your children. There are a number of legal elements to consider when working through these matters. Clarity around what your finances will look like after your separation will help this process and will assist you with your negotiations towards a settlement.
Sorting out your financial affairs
You will need to speak with a lawyer to understand your financial entitlements, and a financial adviser to make sure you can afford to keep what you want.
- work out what you've got and what you owe;
- look at the direct financial contributions from each of your incomes;
- look at indirect financial contributions by each of you, such as gifts and inheritances;
- look at the non-financial contributions and other aspects of your relationship like parenting and homemaking; and
- Ensure future financial requirements take into account your age, health, financial resources, care and education of children and the ability to earn an income.
This list might seem simple, but it can get complicated easily. There are a number of other important factors that can affect the outcome of your settlement. Having the right team around you can guide you through this hard process.
Watch the clock – there is a time limit
Married - applications for property settlement must be made within 12 months of your divorce becoming final.
Defacto - applications for property settlement must be made within 2 years of the breakdown of your relationship.
Source: Family Court of Australia
Property, who gets what?
Property includes assets (things you own) and liabilities (debt). It doesn’t matter whose name is on the documents, who bought the item or who incurred the debt. It may not even matter if property is owned in a family trust.
Your list may include:
- real estate, including your family home
- cash in the bank
- investments, shares, managed funds, investment properties
- insurance policies
- cars, furniture, jewellery
- mortgages, car loans, credit cards and personal debts; and
- beneficiary entitlements of a family trust.
At least initially, all debts of the relationship form part of the asset pool for division, regardless of whose name they’re in.
You are responsible for your own debts and any debts you jointly hold. Unless your agreement is documented properly, there may also be situations where joint debt you thought was taken over by your partner, or even where the debt your partner holds by themselves, could have implications for you in the future long after separation.
For example, say your partner has a car loan and defaults on it, the bank can then turn to your joint assets to reclaim the money your partner owes them. If you can’t afford to pay that debt yourself, you may find some of your assets sold to recoup the debt of your partner.
Superannuation can be split so that part of the superannuation entitlements go to the partner when the policy is paid out. Superannuation is often the second biggest asset accumulated outside of the family home. Don’t forget to include it, especially if you have taken time out of your career to look after children.
Costs for Children
According to the Australian Scholarships Group (ASG), a child born in 2018 will cost around $66,000 to educate (from Prep to Year 12) in a public school in Metropolitan Australia. To educate the same child in a private school, the cost can jump up to $475,000, if you live in Sydney or Melbourne.
Another AGS study from 2016 shows that for a typical middle-class Australian family, the cost of raising a child from birth to the age of seventeen is $297,600.
Long Day childcare can cost up to $192 a day
43.4% of 20-24 year-olds and 17% of 25-29 year-olds continue to live in their parents’ home
Don’t underestimate the cost of future care for your children. You may have moved out at age 18, but it’s unlikely your kids will. Children are financially dependent for longer these days, and want and need more stuff than even existed when you were growing up. From mobile phone plans to uni fees, [EJ1] kids cost more than they used to, for longer.
Your To-Do List
What you need to consider when you find yourself suddenly single, or you are making a decision to become single, not so suddenly.
- Open accounts in your own name and have your pay go directly to this account
- Get a balance of all joint debts
- Get a super account balance for both you and your partner
- Close all joint bank accounts
- Close all joint credit cards
- Arrange valuations for all the assets of your relationship
- Update your beneficiaries for all your insurance policies
- Update your binding death nominations for all super funds
- See an estate planning lawyer and make changes to your Will and Powers of Attorney. Being separated does not cancel your existing will
- Change all PIN and passwords on existing bank accounts in your name
- Change the password on your existing email accounts
- Set up a new email account if you have a joint account
- Review your cost of living using ASIC MoneySmart website budget planner, or something similar – it may take you a few months to understand the additional costs of living alone, start this process as soon as possible. You will need to have an understanding of what your ongoing costs will be, this will give you clarity around what you need to negotiate, and vitally important if you become the sole parent
- If you have a mortgage, call your lender and explain that you have separated and cancel any redraw and offset options on your home loan. Request that both signatures are required for any withdrawals. I’ve helped more than enough clients and friends whose money or equity in their home has “gone missing”. I’ve heard every excuse from tax debts not declared, debts they didn’t realise they were liable for when they agreed to directorships, mobile phone bills, SMSF debts, rent not paid, drug and gambling addictions
- Seek legal advice on where you stand with joint debts and contact your lender if you are having financial hardships
- Talk to your lawyer to work out whether you are entitled to spousal maintenance
- If you are staying in your home, change utilities to your name only
- If you are renting contact your real estate agent or landlord and change the lease into your name only
- If you are moving out, make sure you take your name off all utilities and any lease arrangement
- Record your separation date; you need to be separated for 12 months before you can legally divorce
- Make sure you’ve got copies of your marriage certificate, birth certificate, bank and superannuation statements, insurance policies, including personal, car, home and contents and building insurance, tax returns and car registration papers and any other insurance such as home and contents and building insurance
- List your assets and liabilities, include all home and contents, vehicles, bank accounts, super, investments, mortgages, credit cards, car loans, personal loans
- Put together a list of your personal contact details, next of kin, children’s details, your partner’s salary and employer
- Call Department of Human Services to see if you are entitled to any payments or services relating to child support
- Call Family Relationship Advice line for information regarding parental arrangements
- Talk to your lawyer to work out whether you are entitled to spousal maintenance
- Contact your children’s school and let them know your new circumstances and update your contact details and let them know about changes in pick up roster
- See a financial adviser and mortgage broker to work out whether you can refinance the mortgage on a single income
- Go to Finder.com and get your credit score, this will help your financial adviser and mortgage broker determine whether you are eligible to refinance your home loan
- Look at other options like renting versus owning, or rentvesting, which is buying an investment property for wealth creation, but living in a rented property
- Talk to your financial adviser and review all your personal insurance, it will need to be changed to match your new circumstances
- Protect your ability to earn an income. You need to ensure you can take care of yourself and your children financially should you become ill or injured, and unable to work.
Once Bitten Twice Shy - Prenups or Binding Financial Agreements
According to the Australia Bureau of Statistics 1 in 3 first marriages end in divorce, 60% of second marriages end in divorce, and up to 75% of third marriages in divorce.
Before you decide to move in with your next partner, please consider protecting your assets and children from your previous relationship with a binding financial agreement, also known as a pre-nuptial agreement or prenup.
Binding Financial Arrangements can help with who should get what if the relationship ends.
General Advice warning
Information contained in this document is of a general nature only. It does not constitute financial or taxation advice. The information does not take into account your objectives, needs and circumstances. We recommend that you obtain investment and taxation advice specific to your investment objectives, financial situation and particular needs before making any investment decision or acting on any of the information contained in this document. Subject to law, Capstone Financial Planning nor their directors or employees:
• gives any representation or warranty as to the reliability, accuracy or completeness of the information; or
• accepts any responsibility for any person acting, or refraining from acting, on the basis of the information contained in this document.
Seeking professional advice can assist in determining your property entitlements and what your options are in relation to the ongoing care of your childrenNicole Heales
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