Divorce or separation is awful. It’s a devastating mix of emotions, uncertainty, and fear. Believe me. I know. I have been there myself and helped a number of clients through their own separation or divorce. Here is what I have learned and how I use this knowledge to help others:
Typically, couples going through separation or divorce suffer through several difficult experiences which might include:
The pain of the breakdown of the relationship itself,
Worrying about children and broader family relationships,
Worrying about mental health and wellbeing,
Worrying about being alone,
Navigating the complex and unfamiliar world of Family Law, mediation, parenting orders and financial orders.
Taking on an managing your financial affairs for the first time.
Even as a financial planner myself, I worried about my financial future. What assets would I end up with? Would that be enough for me and my kids? Would we be OK? This fear and confusion can be much worse if you are unfamiliar with managing your own financial affairs.
This world of financial uncertainty and fear is where I (and other financial planners) can help.
So how do I add value to divorcing or separating couples:
1. First Things First – put your oxygen mask on
We have all heard the airplane safety instruction “put your own oxygen mask on before helping others”. The reason for this instruction is that you can’t help your loved ones if you pass out from lack of oxygen.
A similar principle applies to divorce or separation. You can’t help your children or each other if one of you is struggling to survive.
Typically, divorcing or separating couples need interim arrangements to give them time to negotiate their final arrangements.
Interim arrangements can include agreeing:
Where will each party live until the final property settlement?
How will each party fund their living expenses, children’s expenses, therapeutic needs, and legal and financial costs?
How will children or pets spend time with each parent.
Often, a couple’s incomes do not easily stretch to support two households, let alone the additional costs of separation or divorce. This is where a financial planner can look creatively at the financial resources available to the couple and help them come up with an interim financial plan. This may involve drawing down on savings, selling some investments or even borrowing money to allow time to sell illiquid assets or for one partner to get a job.
2. Setting the Scene - its about you, your relationships and what’s important to you
As a financial planner for over 17 years, my role has always been to help my clients articulate their short and long-term goals and objectives and their fears and concerns. Getting this information out in the open provides clarity about what the clients want to do and when they want to do it.
Even happy couples, can have conflicting goals or fears which need to be explored, understood, navigated and solved. But with empathy, creativity and goodwill, there is almost always a way forward. Whilst divorcing or separating couples can have more extreme difference and less empathy and goodwill, the process of getting these views on out in the open is still critical to arriving at the best solution possible.
So the first step, is to help divorcing or separating clients articulate their wishes, needs, fears and concerns. This step is much more than just about the finances. Our conversations focus on your values, your relationships, your work, your family, and your lifestyle goals. For us, money is only a means to achieve your lifestyle goals.
3. Unscrambling the Egg
By the time many couples have been together for some time, they can have accumulated a complex mix of incomes and expenses, assets, and liabilities. This can include the family home, investments, businesses, companies, family trusts, superannuation funds, insurances, and estate plans. Assets and liabilities can be onshore or offshore.
So, after understanding the client’s lifestyle and financial goals and objectives, the next step is to investigate and understand the financial resources available to the couple. They can involve complex legal, financial, accounting and tax issues. Sometimes our clients don’t understand their finances and so we need to explain to them what their financial situation is now and what this means going forward.
4. Making “1 + 1=2”
So now we know what the client’s goals are and what resources are available to meet those goals.
Sometimes, clients and lawyers will focus solely on what the current assets are and how they should be split. But this approach does not always lead to the best outcome.
A broader approach not only looks at the current pool of assets but also considers what those assets could become to better suit the needs of the clients. For example, one large house may become two smaller houses, a business might be sold or split in two, an investment property may be sold to provide higher income and greater flexibility.
Even more creative solutions can provide better living solutions for lower income spouses and children. For example, the couple may invest together in a home for the lower income spouse and children. The higher income partner may pay for the mortgage, allowing the children to stay at their current school and give the spouse time to retrain or get a higher paying job. The property can then be sold at an agreed future date and the capital gains split between the parties.
I have even seen future inheritances used to arrive at a fairer outcome for both parties. Just like you wouldn’t expect a plumber to be the best person to fix your car, you should not expect that a lawyer or a non-financial mediator will have all the necessary skills and experience to arrive at the best long term financial outcome for you.
5. Clarity, Understanding and Confidence
Finally, separation and divorce usually take time and invariably involves expected and unexpected difficulties and emotional ups and downs. What we all want during such times is someone by our side, someone who has been on the journey before, can foresee and plan for expected events and adapt and adjust to unexpected events. Someone who provide clarity, understanding and confidence that everything will be OK.
Divorce and separation involve many complex and difficult issues, none the least of which is your financial situation at the end of the process. Getting it right can have a huge positive impact on your post separation lifestyle. Getting it wrong can have a huge negative impact.
If possible, couples should use the right professional for each aspect of their separation and divorce. Divorce coaches, mediators, or lawyers to help reach agreement, lawyers to document agreements or manage court matters. Counsellors for the emotional and relationship aspects. And finally, financial planners to help understand and devise the best financial outcome.
@Paul Barrett of Absolute Wealth Advisers is one of Australia's most experienced Private Wealth Managers. He is a financial expert in high net wealth divorce, estate management and inheritance. Contact him here