Going through a separation is very, very difficult because you have all these financial decisions to make while also trying to deal with the emotional trauma that comes with a breakup. As humans we tend to make bad financial decisions when we are emotional. Decisions which can come back to haunt us later in life.
Today I want to try and take some of the emotion out of it and go over the steps to get your life financially back on track. Having a win with your finances is going to alleviate some of the anxiety and stress and give you mental space to better deal with the emotional side.
It’s very hard to feel confident and move forward onto bigger and better things if you don’t have a steady source of income, if you can’t pay your bills on time or if you feel trapped because you don’t have the money to do anything in life. We need to fix this.
By following these steps and I am confident you will start to feel like a new person. You will be ready to tackle new adventures in your life and open yourself up to the silver lining that comes with every separation but can be hard to see through the short-term noise.
Just as a word of caution, everyone’s situation is different so this may not specifically apply to you. I would suggest you seek independent advice from a solicitor prior to doing anything.
Step 1. Secure steady income
The first thing you will need to do is get yourself some income because with money comes independence.
If you are already working, then this step is easy. Simply make sure that the income you are receiving is going into an account that only you can access. There may still be some joint expenses that you have to contribute to, but we will touch on this later.
If you aren’t working and don’t have a source of income, then this makes things trickier. You may be entitled to spousal maintenance and/or child support from your ex.
There are also some government payments you may be entitled to such as the Parenting Payment and/or Family Tax Benefit. You should contact Centrelink about your potential entitlements as a priority. Just be aware, these payments may not start coming through immediately and won’t be enough to provide the financial independence you need to rebuild a new, better life.
Ideally, you need to get yourself your own source of income and the best way to do this is to get a job. Yes, it’s going to be difficult if you are looking after children, but you need to make it work because having no money or relying on an ex-spouse to provide for you is harder in the long run!
Once you have your source of income secured, you then have the means to start the rebuild.
Step 2. Get a comfortable short-term living arrangement
Everyone on this planet should have access to a comfortable, safe and secure living arrangement. Sometimes in a separation, the home you were living in may not offer this to you anymore, so you need to make new arrangements.
If you and your ex can co-exist in the same space amicably, it is very possible to be legally separated but both continue living in the same home. Lawyers will often suggest this is also the best way to protect your interests.
By staying in the house, you have time to formalise a separation agreement, i.e. how will mortgage repayments be split? I have seen previously where a couple has split, one person goes out and rents a place, the other person remains in the house, and this leads to further conflict. The person renting wants compensation or “rent” from the person who is still in the house, but they don’t see it this way as “it’s their house”. Ideally you want all of the terms agreed upon before your departure.
There are times where it is not practical to remain living together, particularly in the instance of domestic violence. In this instance, the safety of yourself and your children are of the upmost importance and the financial stuff will work itself out later. If you do take your children with you, you should obtain a court order for temporary custody as soon as possible to avoid accusations of kidnapping.
In the short term, do not buy a new house even if you have the financial capacity to do so. You should never make large financial decisions during a big transition phase in your life. There are a lot of steps to take before you purchase a new house. Instead, if you must move out of the house, look for a place to rent.
You could also consider moving in with friends or family if this is an option, but this may be a very short-term arrangement. You don’t want to overstay your welcome!
Try and spend as little money as possible on your short-term accommodation. Your cash flow is better used elsewhere and the more cash flow you maintain the more options you will have moving forward. Remember this is only temporary so if the arrangements are suboptimal, just suck it up – short term pain for long term gain! Within reason of course.
Step 3. Financial housekeeping
Now that you have some income and a comfortable (but temporary) living arrangement, it is time to get into the nitty gritty and sort out the finer details that come with separating.
Start by agreeing on and writing down the date of separation. If you are married, you will need to wait a year after this date before you can apply for a divorce. This date is also important when it comes to property settlement as time limits can apply.
Next, it’s time to go on social media and delete all photos you have with that person… Just joking!
Next, secure your information and privacy. This involves changing the passwords or pins for your online banking, social media accounts, email accounts, cloud accounts and the like.
You are also going to want to make sure you have a copy or originals of all the important documentation you may need. This includes:
- marriage certificate
- birth certificate
- bank and super statements
- insurance policies (health, home and contents, car, income protection and life)
- tax records (tax returns and tax file numbers)
- car registration
- bank account, credit card or store card statements
- loan statements
- utility bills (electricity, gas, water, phones and internet)
- property documents (lease, deeds, mortgage documents)
- superannuation account statements
- investment statements (for example, managed funds, share dividends)
- government benefit documents
You can also start to close out all joint accounts, especially if they give the other person access to credit. You don’t want your ex to be able to take out debt which you are jointly liable for via a credit card, store account, line of credit or anything of that nature. This includes putting a freeze on any money available in redraw so that it can only be accessed with joint written consent.
It may be practical to retain a single joint account for all joint expenses such as mortgage repayments, home insurance and children’s expenses. You need to agree exactly what expenses will come out of this account and how much you are both going to contribute to cover these expenses. All single expenses should be funded individually from your respective accounts.
Just as a word of caution, before you close any accounts or credit cards, just make sure any direct debits are redirected. You don’t want payments to be skipped as this could lead to a bad credit rating which may impact your ability to borrow money in the future.
With all these changes going on, it is a good idea to understand your financial obligations moving forward by setting up a new budget. This can allow you to stay ahead financially. I do have a budget spreadsheet on my website which you can use called “Wealth Tracker” and it’s free to download.
Step 4. Divide your property
Your property is essentially any asset you hold including cash, houses, shares, superannuation, cars, personal assets, etc. You can start separating your property as soon as you have agreed on your separation date, you don’t need to wait to be divorced.
The ideal scenario is that you agree to a fair and equitable property settlement with your ex, without going to court. Going to court is costly, time consuming and there is often no winner at the end of it (aside from the lawyers).
To divide your property, you generally follow a four-step process which is also the process followed by the courts. I like to think of this process in terms of cake:
- Identify and value – What is the size of the cake? Write down your total asset pool with the agreed upon value of each asset.
- Consider contributions – Who made the cake? Consideration needs to be made to who contributed to the asset pool both directly (putting money in) and indirectly (unpaid work such as being a stay-at-home parent).
- Further adjustments – What could impact the cake in the future? Consider any additional adjustments to the split of the asset pool other than contributions. This may include future income earning capacity and responsibilities for caring for any children.
- Just and equitable – Did both parties get a fair slice of cake? Ensure the final agreement is ‘just and equitable’ to both parties.
Remember, this is not about getting back at your ex, it’s about moving on with your life. Sometimes it is worth conceding on small items to win in the long run. For example, if you value the couch at $1,000 but your ex only values it at $500, then just accept $500 and move on with it. This is not to say you need to concede on everything, it just means you should choose your battles wisely!
Once you believe you have come to a fair and amicable arrangement, you should seek independent legal advice to ensure you are on solid ground. If you can’t agree on a fair split, you may want to get legal counsel or a mediator to help with the process.
Once you have come to an agreement, I would suggest applying for a Consent Order. This is a written agreement that is approved by the court. You don’t legally need to have a Consent Order, you can have a written or informal agreement that is not approved by the court, but it does give you greater certainty and security moving forward.
Step 5. Update your estate plan
A separation is one of those events that deem it necessary to have your estate plan updated. This includes a number of aspects.
Firstly, you want to update your will to ensure your estate is passed on to the appropriate beneficiaries if you were to pass away. The laws vary between states, but without a Divorce Order your ex may still inherit your estate.
In addition to the will, you may need to update your power of attorney and/or power of guardianship. If you don’t have these documents in place, it might be worthwhile considering them.
You also need to update the beneficiaries on your superannuation and insurance policies.
A divorce deems a superannuation death benefit nomination invalid (even if it’s a binding nomination). However, a separated (but not divorced) spouse would still be considered a dependent under superannuation law. It’s best to update your nomination straight away to give you more certainty about who will receive your death benefit.
Just bear in mind, if property is owned “jointly” with your ex, it does not form part of your estate. It automatically reverts to the surviving owner under the right of survivorship. This means the joint property will pass directly to your ex.
You can avoid this by making arrangements for the property to be held as “tenants in common” instead of joint tenants. To change how your property is held, speak to your lender and land titles office. Alternatively, a lawyer can help.
Step 6. Let the re-build begin
Now comes the exciting step. This is where you can reflect on your own personal and financial ambitions and put in motion the wheels to rebuild your new life.
At this point I would strongly suggest you put together a financial plan which outlines your financial goals and details a strategy to get you there. You can do this yourself or work with a Financial Adviser to assist you. Just remember, failing to plan is a plan to fail!
One suggestion I would make to you during this step is to have a little think about what financial freedom means to you. In other words, if you didn’t have to work for money, what would your life look like? This long-term outlook can help dictate the short-term steps you should be taking.