Here’s how to protect your money during a divorce
Separation and divorce are not easy. We go into relationships wanting them to succeed, so when a relationship ends it can be emotional and traumatic on all involved, particularly if children are involved.
A relationship ending usually results in anxiety over finances as assets, liabilities and incomes are considered; and potential split options and care options for the children are discussed and worked through.
The majority of couples that are separating want to do so in a cost-effective and peaceful manner, ensuring that all they have worked for is not spent on professional fees and is instead divided between them in a fair and reasonable manner. However, as the financial reality of the ramifications of a financial settlement are digested, both parties often struggle to accept their “new normal”, and the temptation is to “fight” for more from our partner (therefore reducing their share) irrespective of the cost of doing so.
Here is our advice on how best to protect your money during separation and divorce.
Communication and Disclosure
- You and your ex communicating and working together to agree your assets and liabilities is the most efficient and effective way to protect your money during separation and divorce.
- Communication post separation can be challenging at times, but working out a factual and positive way to communicate with your ex will save both of you, financially and emotionally.
- You are both human and hurting, so you will make mistakes as you move through this process and your communication with each other will not always be factual or respectful; take ownership when you make such mistakes, apologise and move forward – united in your joint end-goal of obtaining cost effective legally binding property and parenting orders.
- Choosing to ignore your ex-partner will eventually result in them engaging a lawyer and commencing legal action against you – not necessarily because this is the action they want to take but because they have no other option, since only the Court has the power to require someone to do something in family law matters.
- Both of you are required to disclosure your financial interests and provide supporting documents. Some people choose not to voluntarily disclose such information to their cost and detriment. All financial information will eventually be disclosed, whether voluntarily or via a court order, so you are both in control of how much this disclosure process costs you. If you both choose to share information with your ex-partner as soon as it is asked for, this transparency will build trust and credibility, which will help you both to agree on a property settlement that you can each live with, having been fair and accepting and “give and take” approach. This approach will result in huge savings on legal and professional fees for both of you, and will set you up for success at co-parenting moving forwards.
Care for your children
- In nearly all relationship breakdowns both parents have their children as they main concern. Keep this “what is best for the children” focus and bring each discussion you have back to this goal to keep each of you on track and focused on what is important.
- Work together to agree on the care arrangements for your children, considering the practical aspects of your work commitments and your children’s needs.
- Notify your child’s school to let them know that you have separated and update your contact details. Schools are well set up now to ensure all correspondence is sent to both parents, so this ensures that both parents are still aware and up to date with all matters in relation to their child.
- There are many free services available to support both of you and also your children, so work together to support your children (with the support of professionals if required) to ensure your children know they are loved and valued by both of you and that you will work together to come up with the best practical solution to enable them to spend time with and communicate with each of their parents on a regular basis.
- When couples separate, it takes time to determine how and when to separate finances – this is best worked through together, so that neither party is blindsided and the transition to separate finances is planned and uneventful.
- Often couples choose to keep finances joint until a future event occurs e.g. a property is sold or one party buys the other out of a property and refinances the mortgage into their name – the specifics of how and when finances are split is a choice for the couple, but communication and planning for this generates positive results and minimises financial stress. While finances are joint, child support is not paid, so this is also a factor for couples to consider, as to when suits them to move into separate finances and a child support arrangement (if applicable).
- It is recommended that you approach your bank and change any redraw facilities so that funds can only be withdrawn if both of you sign approving such a redraw – this will give both of you time and security to work through your asset split, without being concerned that your ex-partner could redraw funds without your knowledge or approval.
- Do up a budget for yourself for when your finances are to be separated, as this will enable to discuss with your ex-partner what is achievable and realistic, and may impact how your property settlement and child support is structured.
- Be realistic – once you have an idea of what your property split might look like and you know how much you earn and how much child support you will receive or pay – consider whether you can afford to fund your living costs and any debt payments you need to make. If there is a gap, consider options for how to address this and make the required changes, so you don’t get yourself into a position where you cannot meet your agreed repayments and hence your credit rating will be negatively impacted.
Bank Accounts and Credit Cards
- If you only have joint accounts, it is best for each of you to open a bank account in your name only
- If one of you have been using a supplementary credit card with your partner being the primary account holder, then apply for a credit card in your own name
- The above steps are necessary in order to determine when to transition to separate finances. A planned approach to this enables couples to consider current direct debits / loan payments and determine whether to allocate these to their individual accounts or cancel current arrangements, ensuring that no payments bounce and credit ratings are not negatively impacted.
Financial Documentation to protect your money during divorce
- Collect copies of financial documentation, ideally from a period of 12 months before your separation, including:
- Bank statements
- Credit card statements
- Lease of residential property or contract of purchase
- Mortgage / Loan / Finance statements
- Utility bills
- Superannuation statements
- Insurance statements
- Car registration documents
- Tax returns
- Investment statements
- Keep a running list of assets and liabilities to be divided during the separation – update this list as assets are sold or debts paid off. The court will want to know if either party has sold or bought assets since separation, so good to keep track of such events.
- Work together to agree to pay down debt, if this is something you both want to do and keep your finances joint until certain debts are paid off. This is a common approach taken when financing is approved (normally for one party to buy the other out of the family home) conditional upon certain debts having been paid out.
- Gather relevant docs and take notes to cover yourself. Keep notes of any conversation and actions to cover yourself – this might include the removal of furniture, important phone calls, selling shared items or moving money between accounts.
Knowledge and Understanding
Educate yourself and seek advice to understand what is involved in determining a property settlement. Some key points to understand are:
- Current value is required for all assets and liabilities
- It doesn’t matter in whose name assets or liabilities are in, they are all part of the marital pool of assets and liabilities
- All contributions are valued – financial, parent and homemaker
- Superannuation can be split but must remain in super
Accounts and Privacy
Once you separate, you each want to ensure you have the privacy you deserve, so it is worthwhile considering:
- Creating new email accounts
- Separate out emails going to joint / family email accounts and agree how to split emails and update senders
- Consider changing pin numbers and passwords
- Creating new online storage and photo backup accounts
- Setting up a PO Box for your mail
- Creating new Uber and other such accounts
- Storing copies of documentation away from the family home
- Creating new online shopping and paypal accounts
- Ensuring your mobile is in your own name and statements are going to your newly established personal email
Wills, insurance and Superannuation
- Review your current will and power of attorney and consider updating each of these documents if these documents no longer reflect your wishes.
- Consider the listed guardians for your children and determine if you want to make any changes to your current nominations.
- Review your currently listed superannuation beneficiaries and update these nominations if the currently listed beneficiary is your spouse and you no longer want any superannuation payout to go to them.
- Review and consider your life insurance and determine if your current coverage is right for your new situation and whether the beneficiaries need to be updated.
- Seek specialist legal advice in relation to your estate planning.