How to split assets and financially recover from divorce
Many smart and successful women worry that they don't understand how to manage finances in a divorce.
This is part two of a two-part series on how to divorce well, ensuring that both parties - and most importantly any children, emerge with enough money to live and rebuild. Read part one on my financial survival tips for the early days of divorce.
In the midst of a life-shattering separation, it can be daunting to figure out how to financially forge ahead by splitting your assets and future-proofing your financial future. But my simple template to repair and rebuild your money can help.
It’s a template that I tested it out with my own separation, and a cancer fight at almost the same time (which I am so grateful to report was a successful one).
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Let’s start at the vital, very first step: getting your fair share – fair being the operative word – of the partnership’s assets.
How to fairly split assets on divorce or separation
It is financially beneficial for both parties if a couple can agree on an asset split between themselves, rather than involving lawyers. If you get ‘help’ with that decision then you will likely split your money three ways instead of two. And, in my experience, some lawyers even try to start disputes where there are none.
My up-front advice is to do your utmost to stay amicable – it will save you both a fortune.
It is also crucial that both partners realise that it is each person’s contribution to a relationship that counts for determining a fair asset split. This doesn’t just include money and earnings but also parenting, during which time someone may have earned little and also seen their career prospects and superannuation suffer.
Each person needs to get a commensurate proportion of the assets. The stay-at-home parent may even get a compensatory portion: more than 50 per cent. This is particularly so if the other person’s future earning power is now larger. Whatever asset split is agreed, it is safest to get it enshrined by the court or via a private binding financial agreement.
You can get it enshrined by the court by submitting a consent order to the Federal Circuit and Family Court of Australia, which will need to be satisfied that the division is fair before approval is granted. If the asset split is anything other than 50:50, you will need to justify why in the consent order.
To make the consent order, and only that part, it’s advisable to get lawyers – we did. You may be eligible for free legal services; but if not, the applicant will need to pay around $6,000 and the respondent around $4,000. You could also equalise this cost between you to keep it fair.
An equitable and watertight settlement will give you peace of mind for a reimagined future.
My five-step template to repair and rebuild your finances
Here is the five-step FIRST financial template I used for my divorce to help me get back on my feet.
‘F’ stands for fund: Start what I call a ‘Holy Shit’ fund. You can collect this slowly but aim to build it to six months’ salary. If you have a mortgage, house this in an offset account beside your loan so the money pays it off for free.
‘I’ stands for insurance: Insurance is important if you have dependent children (make sure you have enough life insurance to cover their upbringing and your debts) but income protection insurance is crucial if you are single, even once your children have left. You need to be absolutely sure that if you become ill or injured that you can afford to live and keep up repayments on any mortgage.
‘R’ stands for rates: Do not be complacent about how much you pay on your mortgage or any other personal debt. There is a price difference of more than two percentage points between the best-value and most expensive home loans, which could amount to hundreds of thousands of unnecessary dollars. At a 6.36 per cent interest rate, what you ultimately outlay doubles the price you originally paid. Jump on a comparison website to put more money back in your pocket – regularly.
‘S’ stands for super: This may look different after your separation - sometimes in the asset split, women or mothers get the house to better provide for any children while men keep the bulk of super. Look to grow your balance for your retirement, regardless. Again, slowly but regularly put in whatever you can.
‘T’ stands for tests: This last one is a personal plea to look after yourself personally – get those tests; do those checks. Health is wealth.
Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, Twitter and Instagram.
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