Divorce hurts but you can reduce its financial carnage
The conflicts leading up to divorce can exact a longterm toll. Photo: Getty
Divorce exacts not only a huge emotional toll, but a financial price that can last for many years.
If you act intelligently, however, you can ease the financial pain.
The devastating financial effects of broken relationships are detailed in a report from NATSEM at the University of Canberra, and financial group AMP.
Unsurprisingly, home ownership is a huge challenge for divorced couples, with many having to sell the family home.
Once couples split, (on average 3.5 years before divorce is finalised) home ownership declines dramatically, as this chart shows.
While rates rise quickly after divorce, after five years, 40 per cent of divorced mothers are still living in rental accommodation as are 32 per cent of fathers. This compares with only 14 per cent of married couples with children.
The immediate effects of divorce on assets can be devastating with a divorced man typically holding 67 per cent fewer assets than his married counterpart, and a woman 90 per cent fewer than her married cohort.
The report found that newly divorced women have non-property debt levels 2.3 times those incurred by married women, and three times those owed by divorced men.
This could be because divorced women struggle to meet everyday costs with a reduced household income.
Mothers divorced for less than five years spend 66.4 per cent of their household budget on necessities such as groceries, clothing and footwear, utilities and communications.
Married parents spend 52.8 per cent of household budgets on necessities.
Divorced mothers typically have 68 per cent less super than their married cohort, while for men it’s 60 per cent.
While the cost of splitting assets and lives is always going to be high, if you act intelligently and cover your bases you can save yourself grief and money in the longer term.
Brian Kerr, senior financial counsellor with National Debt Helpline, says recognising the trauma of divorce and seeking counselling can “help avoid finishing in a mess financially and emotionally”.
Take some simple steps
He also suggests a few actions to take when relationships break down irretrievably.
“Make sure you close joint accounts so your ex can’t access your money.
“Make sure you cancel any joint withdrawal facilities on a jointly held mortgage and understand if your name is on the rental lease or utility bills then you are responsible.”
Dianne Charman, an AMP financial planner, says, “part of understanding your financial situation is understanding your cash flow. Know where it has been coming from and work out where it will come from now”.
“Find out whether you are eligible for any Centrelink benefits to help you get through because you’re going to have a period of pain. It’s also important to balance your short-, and long-term needs and plan for any shortfalls,” Ms Charman said.
Be rational
Once you get to the stage of divorce, it’s important to get your priorities right, says family law barrister Bruno Kiernan.
“People often think emotionally and not commercially. They believe they are entitled to certain outcomes and don’t look at the commercial reality,” Mr Kiernan said.
“You can spend hundreds of thousands and blow a big hole in your asset pool if you act on your emotions rather than thinking commercially and getting good advice.”
There is a four-step process the courts go through to determine the asset split in divorce, Mr Kiernan says.
- Identifying the family assets, including what assets each partner brought to the marriage.
- Establishing who has contributed to building the assets in the marriage. Remember home-making and child-raising are considered an equal contribution to income from work or business.
- Adjusting the outcome for needs. The court looks at the likely earning abilities of both partners into the future to determine the split.
- Is the final split just and equitable? Normally first three steps will ensure this is not needed.
If possible make an agreement and avoid the courts.
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