Navigating the finances of divorce
- Financial Planning
It’s nearly 50 years since psychiatrists Thomas Holmes and Richard Rahe developed their renowned stress scale as a means of indicating the relative stress levels caused by different life events. The scale is still widely referenced today and interestingly ranks divorce as being second only to death of a spouse as a source of stress and ahead of other events, such as going to prison, major illness and death of a close family member.
While this research underscores the emotional upheaval of divorce, the financial impacts can also be extremely damaging for both parties. Regaining financial stability post-divorce, however, is achievable if you plan properly and seek the right advice.
The property settlement process
While circumstances will vary from case to case, the law provides for the same general process to be applied to property settlement. The first step in that process is to arrive at a fair valuation of the assets within the marriage, including the home, vehicles, bank savings accounts, investments, shares and business holdings. To ensure that valuations are fair it is usually necessary to obtain an independent valuation.
Of course there may be some assets that each partner may claim as being solely owned, as opposed to jointly owned. Those sorts of issues may need to be negotiated with the help of a lawyer. A lawyer is also essential for taking care of the necessary administrative and legal requirements of the settlement, so that agreements can be legally ratified. If dispute does arise over ownership or share of any assets, then resolution may need to be referred to a court for a ruling.
Determining a fair share
As part of the process of working out proportional share of ownership, the usual practice is to determine the contribution each party has made to the relationship. These “contributions” are not simply related to income earning but also include unpaid contributions, such as time spent running the household and caring for children. Even things like time and effort put into home renovations may be considered as a valid contribution to the value of an asset.
The final decision on how assets are to be split will also need to take into account the future circumstances of each party and the needs of dependents. Will each party be able to earn income? What state of health are they in? Who will be responsible for caring for children? These are all factors that will affect a court’s ruling on who gets what.
Super needs to be shared too
While assets such as the home and bank accounts get most of the attention when negotiating a settlement, super may not be top of mind. The reality is that super may be one of the largest assets of all and sharing needs to be negotiated just like any other asset.
If one partner has foregone earning income and accumulating super in order to raise children then they may have grounds to claim entitlement to the other partner’s super as compensation. Of course cashing in super prior to retirement is heavily restricted, which means access to the proceeds will need to be deferred until retirement occurs. Alternatively, the parties may agree to alter the share of other assets in exchange for surrendering any entitlement to super benefits.
Getting the right advice
In the same way that you would use a lawyer to help negotiate the property settlement, a financial adviser can be a helping hand in planning how you can adjust finances to single life and how to invest the proceeds of the settlement to meet your long term goals. They can be a useful ally and a steadying influence to help relieve the uncertainty at a difficult time.
Have you gone through a divorce settlement? Share any financial tips you may have learned.
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