Julie Rainbow had a nightmare divorce. Ten years ago, she was a happily married mother-of-two with an award-winning business, a portfolio of investment properties and what she presumed was a healthy financial situation. When her son was hospitalised with pneumonia, she confidently handed over control of her finances to her husband.
But Ms Rainbow soon realised that her marriage was not what she once thought. Her husband disappeared overseas, leaving her with crippling debt and children to care for single-handed. Inundated with constant phone calls asking for her absent spouse to pay back numerous debts (including over $200,000 he had borrowed from Ms Rainbow’s family without her knowledge), her lawyers advised her that her best option was to declare bankruptcy.
As if that wasn’t bad enough, the divorce process cost her more than $15,000.
She worked three jobs to put her daughter through private school and has only recently managed to get back on her feet after three years of bankruptcy and seven years with a bad credit rating.
“It kills you to think you’re an educated person and you could allow yourself to get into that situation,” says Ms Rainbow, who now runs Clarity Road, an organisation dedicated to educating women about their marriage and financial standing.
“It doesn’t matter how much you love your partner and trust them, know where you stand financially.”
The harsh reality
According to Dr Lixia Qu, senior research fellow at the Australian Institute of Family studies, around one third of marriages end in divorce.
And it gets worse: A 2012 AIFS study revealed that households headed by divorced men or women had significantly lower annual incomes and fewer assets than households headed by married or never-married individuals.
Unfortunately, your prospects are even bleaker if you’re a woman and have children. Dr Qu cites research suggesting that women experience a greater decline in living standards following a divorce compared with men. Women also tend to recover more slowly from this sharp decline if they have children.
Jacqueline Wharton, a former lawyer and litigator, founded counselling company Separation and Divorce Advisors after feeling “bewildered” by the financial and emotional costs of her own divorce.
“The worst financial decision you can ever make is to get divorced,” says Ms Wharton.
“Not many people walk away cheering.”
Beginning the process
Acquiring a certificate of divorce is the easiest, cheapest part – it costs $800 to apply (some individuals may be eligible for discounts due to their financial situation). Prior to applying, you must be separated from your spouse for 12 months and one day, an ideal time for negotiating the complicated and expensive side of a marriage breakdown: the division of finances, assets and kids.
Whatever issues you have with your partner, you should avoid taking them to court before attempting dispute resolution. You can do this with the help of a mediator or lawyer, or you can go to government-funded Family Relationship Centres. These centres provide an hour of family dispute resolution for free and then follow-up meetings for $30 an hour, although the wait times are longer.
A couple with an amicable relationship can sit down and draw up an agreement themselves or with the help of a lawyer or mediator. They must then have it formalised with a consent order in the courts for a $145 application fee.
If you decide to take the lawyer or mediator route, be aware that things can add up.
“I’ve had clients who receive a $2,000 invoice from their lawyer,” says Ms Wharton.
“They say, ‘I had a one and a half-hour meeting with them and they just confirmed what I already knew and it cost me that much.'”
Most lawyers charge upwards of $350 an hour and often ask for a retainer up front, so it pays to make the most of your time with them.
It is worth bearing in mind that pre-nuptial agreements can help “narrow the dispute” and decrease negotiation time.
However, family lawyer and director of Resolve Conflicts Catherine Gale says that a couple’s circumstances can change.
“Life is unpredictable,” she says. “If you have kids or one partner gets sick, the agreement may be inequitable.”
When things get nasty, they get expensive.
If your matter needs to be taken to court, you are required to pay initiating application fees upwards of $300 on top of lawyer fees. Most cases will be resolved in the less-expensive Federal Circuit Court, which charges a $560 daily hearing fee. More complex cases end up in the Family Court, which is pricier at $765 for a daily hearing.
The unseen costs
An inability to do your job due to emotional duress, plus the cost of transport to and from the court, are worth keeping in mind.
“I had a client who was required to appear in court on a weekday but couldn’t afford to take another day off work,” says Ms Wharton.
“It’s not just the direct but the indirect costs that take their toll.”
The taxes and fees associated with separating your superannuation and assets can also catch you off guard, especially if you are the spouse with less financial knowledge.How to cope
Knowledge is power
Knowing where you stand financially as an individual drastically improves the divorce process.
Seeking legal advice helps you know what you’re entitled to, but use lawyers in an efficient manner. Prepare your questions beforehand to save time and money.
“You have to prepare for your divorce just like you prepared for your wedding,” says Ms Wharton.
Seek financial advice
It’s a frustrating reality that usually one spouse has a better understanding of the finances and, in nastier situations, can sometimes use this to their advantage.
Patrick Canion, CEO of IPAC Western Australia, says that sitting down with a financial advisor will get couples on the same page.
In their emotional state, “people make hasty decisions which incur more tax”, he says.
For example, selling an investment property can result in capital gains tax.
Using cash flow modelling, a financial advisor can help you understand what a percentage split means for you down the track, particularly in regards to superannuation and trust fund division.
Ms Gale estimates that the “kitchen table” method of reaching an agreement works only about five per cent of the time.
But the more you can do-it-yourself and avoid lawyer-to-lawyer showdowns and court battles, the better.
“There’s no doubt that coming up with your own agreement as a couple is the cheapest way,” says Ms Wharton.
Prioritise your costs (i.e. your children’s education, your mortgage) and look at ways to earn more money.
Ironically, re-partnering is also one of the few ways to get back on your feet, according to Dr Qu.
Just ensure you learn from your mistakes before jumping straight back on the horse.