Divorce can be one of life’s most emotionally and financially disruptive events. Whether you’re in the early stages of separation or rebuilding after a settlement, understanding the financial implications and taking proactive steps can make all the difference.
Divorce marks a significant life transition, and with it comes a reshaping of your financial landscape. While assets and incomes may be divided and expenses can increase as two households replace one, this change also presents an opportunity to take control of your financial future. One estimate suggests the cost of divorce can reach up to $870,000 per couple. Although studies show that older women often experience a 30% to 45% drop in living standards.
Divorce brings about financial changes, including legal fees, potential spousal maintenance, child support and the need to reassess retirement plans. While these can be challenging, they also offer a chance to reassess priorities and create a more sustainable financial strategy for the future.
Step one: Understand where you stand financially
Begin by assessing your financial position to gain clarity when negotiating settlements and planning your future.
- List all of your assets including property, superannuation, vehicles, bank accounts and investments.
- Identify liabilities, such as mortgages, credit cards and personal loans.
- Detail your income sources including employment, Centrelink, child support and spousal maintenance.
Step two: Budget for your new life
Post-divorce budgeting is more than balancing numbers. It’s about redefining your financial identity. You may need to adjust your lifestyle, reconsider housing options and build an emergency fund to account for unexpected costs.
Don’t overlook your credit health. Joint accounts and shared liabilities can affect your credit score, even after separation. Close or convert joint accounts, monitor statements, and ensure that bills are paid on time. Maintaining good credit and cash flow is important for securing housing loans and for your future financial stability.
Step three: Understand asset division and superannuation
Property settlements can involve detailed considerations, including potential tax outcomes, so it’s important to approach them with informed guidance.
Assets acquired before or during a marriage, including superannuation, are usually part of the asset pool. Super accounts can be split as part of a settlement, transferring a portion from one partner to the other, which can significantly impact retirement planning.
Don’t forget that timing matters in financial decisions during divorce. Making asset or investment decisions in the midst of heightened emotions can lead to missteps. Taking the time to reflect and understand your options, seeking independent advice, and avoiding decisions based on short-term comfort, such as keeping the family home, can help you make clearer, more confident choices. A measured approach helps protect your long-term security.
Keep in mind there might be legal time limits for settlement, whether you’re married people or in a de facto relationship.
Step four: Consider tax and legal factors early
Divorce can have tax implications, especially when assets are transferred or sold. However, you may be eligible for capital gains tax rollover relief and stamp duty exemptions, depending on your situation, so it’s worth exploring your options.
It’s also important to update your will, powers of attorney and insurance policies as quickly as possible.
Because these decisions have a lasting impact, it’s wise to seek guidance from not only your lawyer but also a tax specialist.
Step five: Rebuild with purpose
Once things settle, it’s time to focus on rebuilding and planning ahead.
Take the time to:
- Set new financial goals;
- Develop an investment strategy that aligns with your comfort level around risk;
- Maximise your super contributions where possible; and
- Plan for retirement with revised expectations.
Divorce is a financial reset. While it can feel overwhelming, it also presents as an opportunity to take control of your financial future. With the right advice, you can move forward with strength and clarity.
Next steps
If you’re going through a separation, seeking financial advice early can make a significant difference. The sooner you start planning, the better equipped you’ll be to protect your assets, support your family and lay the groundwork for a stable secure financial future.
Speak with your local Nexia Adviser to help you navigate this transition. We’re here to assess your financial position and guide you with clarity and confidence.
