Divorce is probably the biggest destroyer of wealth for the average family. It often happens at when you are in your peak earning years, leaving you without the time or energy to take financial risks and make your money back.
On top of that, you will have greater costs to pay such as litigation fees and child maintenance. All in all, divorce is a terrible thing financially but sometimes unavoidable.
Not many people plan for divorce before or whilst they are married – which is completely normal and I’m not advocating for people to do that, that would be weird. What is smart, is planning your settlement and finances whilst you’re going through your divorce and hopefully, you will get a few great ideas and keep some really important considerations front of mind after reading this article.
In this article we are going to cover off the hot button issues about the different assets you should be thinking about, avoiding common divorce financial disasters and making sure that you don’t leave your marriage in a financially stunted state that you can’t come back from.
Some things are going to be completely unavoidable such as child support and maintenance and you won’t find anything in this article about how to avoid and dodge those obligations or hiding money so your partner gets ripped off. That’s a douchebag move and I don’t advocate for it.
So we are going to kick into the different strategies that you can look at. Keep in mind that these may not be suitable for you and if you’re confused about whether or not this is right for you, it probably is and you need to speak with someone who can clear up the confusion.
Strategy #1 – Get your lawyer speaking financial language
Your lawyer is probably great, they are going in to bat for you and fighting to get you what you want but here’s the thing, lawyers are great at knowing the law and they might have a good brain for finances but chances are, they aren’t trained in investments, superannuation and tax which means what can look good and fair to you on paper actually leaves you in a position where you’re left with no security and a huge tax bill. The number one strategy is to get your lawyer to speak to your financial adviser and also your accountant to make sure that your lawyer can not only kick-arse negotiating for you but will also get you the best outcome possible.
Strategy #2 – Take advantage of the family home.
This can be a hard strategy to pull off because there is a guarantee that at least 50% of all people separating won’t be able to keep the family home. Here is the reality of the family home. It is generally tax-free upon sale which means that if you need or want to sell the place later you can be saving yourself a huge amount in capital gains tax. Not only with that but whoever doesn’t get the family home will then be on the hunt for a new place which will mean they will have to pay a huge amount in stamp duty and other fees when getting into a new place.
Strategy #3 – Be careful of sneaky capital gains
If you are taking shares, receiving an investment property or some other asset you need to consider your capital gains tax position. This is similar to strategy 2 but with a simple difference. You need to consider the potential capital gain on any asset. Further to this, you need to consider the possibility of having to sell these assets soon after your separation and settlement because finances are tighter than expected. Too many people receive a ‘tax-free’ settlement but all that is happening is that they haven’t considered the divorce a change of beneficial ownership and they exempt it from capital gains and stamp duty at that point.
The tax office will still consider the assets original purchase price at the time of future sale which means, If you don’t consider the tax implications of your assets, you might find yourself footing a monster tax bill because you have taken the share portfolio that you have been building for the last 20 years or taking the investment property that was purchased for $150,000 which is now worth $500,000.
Strategy #4 – Hold on to your super
If you are over 50 years old (or younger but especially over 50) your superannuation is going to be one of your greatest assets and over 50, you have a really limited time to be able to get money in there. Superannuation is one of the most tax-effective investments with a 0% tax rate after age 65, so you need to keep as much as possible for your impending retirement.
Strategy #4 – Now is not the time to teach your kids about money
Emotions are running high and your kids are sponges. Now is not the time to be imparting wisdom about money lessons onto your kids and it is definitely not the time to be talking about the fights you’re probably having with your partner about money. If you involve your kids in this process, you will only hurt their financial education and can create little monsters. By all means, talk to your kids about finances, but money needs to be spoken in the home with as little emotion as possible.
Strategy #5 – Income is KING
Most of the divorced people I meet aren’t having asset issues, they’re having income issues. Assets that grow are great BUT in life after divorce (which usually causes burnout and a fair degree of apathy towards working) keeping your level of income and standard of living is really tough. When looking at the assets that are available, keep in mind that good income is the building block of financial success. You can have a massive asset but if you don’t have enough money to pay the rates or rent, you are going to have to sell it (and it probably isn’t the best time to do so), so really keep in mind your income needs when negotiating for investments so you can keep your head above water and have a consistent and reliable return.
Strategy #6 – The final strategy… Get your head out your ass.
More than likely you hate each other right now or at the very least really don’t like each other. They are awful and they are just trying to make your life miserable right? Well maybe but now is not the time to be teaching them a lesson or to keep fighting based on principle. There are few things that really need to be fought over and who keeps the car really isn’t one of them. Pick your battles strategically and work with your lawyer, adviser and accountant to help you make decisions based less on emotion and more on considered and helpful advice.
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