Going through a divorce? Or maybe you’re on the other side of the maelstrom. Or…maybe that voice in the back of your head is starting to get louder?
Either way, there’s no avoiding it – there are huge financial implications for divorce.
(Obviously, there are also HUGE emotional, personal and familial implications – but I’m a financial adviser experienced in helping people manage their finances after their divorce, so we’ll be focusing on the financial aspects here)
1. Court’s Don’t Start at 50/50
A divorce will mean the division of the family’s financial position. But it’s important to understand that, from a legal perspective, there is no obligation to ‘split them down the middle’. Courts don’t start at a 50/50 split and then re-balance the arrangement to reflect the different parties position.
Instead, they take an overall view of the individual requirements and responsibilities of each party and divide assets along with those lines.
This process is obviously very involved and takes into account:
Custody arrangements and responsibilities
The employment and financial capacities of each party
With this in mind, I believe it’s a good idea to work with your lawyer to construct a reasonable basis for your desired financial settlement.
2. Get it All Signed
Perhaps yours is that ‘totally amicable’ divorce or separation we’ve heard about.
Maybe everyone’s staying on good terms and you’re both really comfortable with the agreement you’ve come to.
Possibly you’ve struck the perfect balance of compromise so you can part ways fairly.
So why would you need a lawyer, right? Everything’s sorted.
Well…no. Make sure you have a lawyer review the agreement you’ve struck and then have it properly processed through the correct legal channels.
Yes, this may well cost you some money upfront in legal fees.
But…if you DON’T do this, then the agreement you made when on ‘good terms’ isn’t worth the paper it’s written on and a newly-aggrieved party can come back – years later sometimes – to re-open old wounds.
3. Financial Priorities
To my mind, here’s what you should be prioritising when finalising your divorce settlement:
a. Somewhere to live
Will you have enough to buy another home for you (and your kids, if relevant)?
Or will you need to take out a mortgage? Can you qualify for one? Do you have the income and/or capital behind you to keep the bank happy?
Or will you be renting after the divorce? What does that mean for your long-term finances? Or your short-term finances even?
b. An income
What will you actually live off?
Will you return to the workforce? In what capacity?
Are there assets that can be used to either generate ‘passive’ income while you re-find your feet? Or that can be sold down over the first few years while you get re-established?
c. A budget
No matter what, your income situation will have changed due to the divorce. Maybe it went up, maybe it went down.
Either way, the way you used to do things won’t cut it anymore.
So prepare a new budget, rehearse it, stick to it, track it.
It’s an asset under the usual property agreements, so normally there will be a split done to balance the accounts.
Where should you put yours? Will it be enough?
What should you do with it in the meantime? What experience do you have with investments?
I don’t need to tell you – a divorce or a separation is horrible. It’s all-encompassing, taxing and mentally draining. So, once you’ve settled your financial priorities, work out what you can afford to spend on a moment of indulgence and take the plunge.
Maybe it’s a weekend away – on your own, or with some of the people that have been there for you through it all. Perhaps it’s a small luxury for yourself (and only for you).
Whatever it is – take a moment to indulge yourself. Plan it, enjoy it, experience it, be present for it.
Then it’s on to what’s next.
Some of the lines from that song Everybody’s Free to Wear Sunscreen fit really well here:
“Don’t expect anyone else to support you.
Maybe you have a trust fund.
Maybe you’ll have a wealthy spouse.
But you never know when either one might run out.”
— EVERYBODY’S FREE TO WEAR SUNSCREEN
The simple, sad and difficult reality is that the financial future you had in mind is now gone.
So it’s on you to now take the financial bull by the horns and wrestle it down.
Work out what you want from life.
Work out what you want to achieve.
Work out what you need to do achieve these goals.
Then put a plan and strategy in place to get you on the right track.
It won’t be immediate, but act early and act consistently and it’ll happen earlier than you expect.