When the highest-profile celebrity couple in the world decide to call it a day and end their two-year marriage (and 14 year relationship), it’s probably a good time to consider the issue of divorce. Almost one-third of first marriages in Australia end in divorce, which is a significant figure, but that figure climbs to 66% for second marriages and a staggering 75% for third marriages. In many of these cases, the highly emotional nature of divorce can result in divorcees failing to address a number of key challenges that can lead to both short-term and long-term financial concerns.
While it’s safe to assume that both Brad and Angelina are financially secure enough not to be impacted unduly by the split, an average couple will almost certainly find their retirement plans and current lifestyle will change dramatically during and after divorce. With that in mind, here are 7 financial issues couples face during divorce:
- One person will probably not see it coming. In relation to the actual filing of divorce papers, single applicants account for almost sixty percent of overall applications, which means that in 6 out of 10 divorces, one party is likely to be at the very least under-prepared, and quite possibly completely blindsided.
- Assets needn’t be split equally. A 50/50 split of assets is not a requirement in a divorce. One party may receive more or less than half – it is up to the court to decide – so it is important to consider your future financial needs, not just for the next year or two but right through to retirement and beyond. This is particularly important if one partner has been financially dependent on the other (for example raising children while the other partner earns the income and develops their career) as they may have difficulty finding work, or may be employed at a significantly lower income than they are used to living on.
- Beware of missing money. Whether managing the family finances is a joint effort or primarily done by one partner, the ease with which money can be transferred in the digital age can pose a serious problem for short-term cash flow during and immediately after a separation. This is especially true in single applicant divorce filings where one partner has had time to plan and prepare their financial strategies while the other often hasn’t. While missing money can be recovered during divorce proceedings, this will take time and can leave the unprepared party without either an income or any savings.
- You will face additional expenses. A separation will require separate accommodation, food, phone, electricity and transport costs in addition to any costs associated with the separation itself (such as legal fees). In conjunction with the previous point, this issue can create extreme financial hardship on top of the enormous emotional strain of a separation.
- Do you have a credit history? This problem is specific to the financially dependent party, as they will frequently be without either a regular income or an established credit history, both of which are required for necessities such as rental tenancy applications and utilities.
- Superannuation is a splittable asset. The current legal position is that superannuation, which is often the largest single asset a couple will have after the family home, may be split up to 50/50. This position potentially offsets the disadvantages mentioned previously for the financially dependent party, as they are likely to have significantly less superannuation if they have been out of the workforce for an extended period. Unfortunately, it appears very few divorcees are actually aware that they are entitled to some of their partner’s superannuation. A 2013 study by Suncorp Insurance found that less than one in six divorcees took their partner’s superannuation into account when negotiating the settlement. This lack of consideration regarding superannuation is of particular concern to women involved in divorce, as there is still a sizeable disparity between the average superannuation balances for men and women. According to the Association of Superannuation Funds of Australia (ASFA) 2014 report, An Update on the Level and Distribution of Retirement Savings, men have an average superannuation account balance of $197,000 when they retire, while women have an average balance of $104,000 at that time.
- Don’t assume full disclosure. By the time the relationship gets to the point of divorce, an amicable resolution is not always achievable and it is quite possible that at least one person in the relationship has taken steps to put money or other assets aside without their partner’s knowledge.
Some of these issues can be negotiated and managed through the normal course of divorce proceedings; however some are extremely time-sensitive and can be particularly detrimental to the long-term financial security of someone who is financially dependent and who isn’t expecting their partner to file for divorce. If you are currently facing the prospect of separation, take the time to discuss your financial situation with a qualified advisor rather than simply agreeing to terms at a time when you are almost certainly emotionally unprepared to do so.