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Financial management during relationship breakdown and divorce Posted on June 20, 2021
Not only can it take a huge emotional toll on those involved, it is a defining financial event in life. A pragmatic approach to how you manage business and money when a relationship ends is an important step towards financial security.
A good first step towards financial pragmatism and ultimately, independence, is to involve a professional third party such as an accountant early. Don’t heed unsolicited advice – although you will likely encounter an abundance of that. Any friend who has been through something similar will share their hot tips, but your story is different, and the details really matter. An accountant will immediately take stock of your value as a couple, and begin to sort your paperwork to see where accounts and assets are jointly owned or not. This will determine the advice that is specific to you, not your single mates.
Once you have an idea of everything you’re dealing with, have a conversation with your partner, if it is realistic to do so. Get an idea of what each of you would like to achieve financially and what each of you believes is reasonable. As soon as you are clear that separation is inevitable, avoid the accrual of combined debt, and make your joint financial value fully visible to your former partner. Transparency equals efficiency in this situation.
If emotions are running free, involve your professional advisers in the talks. This is often avoided by the couple because they hold hope to be able to persuade each other, and professional support can be expensive. Just remember, that it is extremely difficult to change a person’s mind of anything, and your best chances are to provide a legitimate case that complies with the rules and regulations, which is what lawyers and accountants do. A speedy process is more cost efficient.
Ideally, your legal advisor will help you to reach a settlement before you have to go to court. Either way, a water-tight paper trail is absolutely essential so that it can be used as evidence if needed.
The most significant assets are usually property, business and superannuation. A formal valuation of assets needs to take place before any division or liquidation. A property settlement can be reached by mutual agreement, or where an agreement can’t be made, the court can determine the settlement.
Superannuation accounts with a balance of less than $5,000 cannot be split under Family Law. There are also limitations under Family Law on the splitting of non-commutable pensions and annuities of less than $2,000 pa. The division of superannuation follows a process of six steps:
- Request for information – A request for information is made by either spouse, regarding the details of a super benefit.
- Response to request – A response is made with the details of the super benefit.
- Put account on hold – A hold on some types of withdrawals can be placed on the account by agreement of the two parties or by order of the court. This is not essential but may be used as a precaution for settlements that can’t be reached immediately.
- Settlement – The couple, or the court, decide the settlement terms and the proportions of the benefit each spouse will receive.
- Splitting instructions – Instructions are sent to the trustee of the super fund, indicating the method and proportion of the split.
- Splitting the benefit – Part or all of the member’s superannuation is transferred to the non-member spouse (either a new interest is created in the same fund for the non-member spouse i.e. his/her entitlement, or that entitlement is transferred or rolled over to another super fund unless the non-member spouse has satisfied a condition of release).
When it comes to financial support for children, seek legal advice to know what structures, supports and timelines are required in order to do the right thing. Each financial arrangement will be different based on individual circumstances.
If your accountant is involved in the early stages of the separation, they will build your independent financial structure in tandem to the discussions, such accounts in your name, so that when action is required, you are adequately set-up to keep things rolling smoothly.
When it is all said and done, there is more to do. It’s common for couples to come through the separation process emotionally and financially exhausted, so it is understandable that financial forward planning falls to the wayside. Working with an accountant that has an internal Financial Services division is a seamless and beneficial way to transfer your financial information and make proactive decisions to re-build your wealth. Setting new goals and a new budget can be very liberating in the start of your new chapter. And it is important to have someone cast a critical eye over your superannuation and insurances to make sure your finances are going where you want them to.
Professional support can maintain integrity in what is typically a messy and upsetting process, and will ensure your best interests are kept at heart.
AdviceCo ABN 85 136 858 190 is an Authorised Representative of Count Financial Limited ABN 19 001 974 625, AFSL 227232. This document has been prepared by AdviceCo and Count Financial Limited ABN 19 001 974 625, AFSL 227232 (Count). Count is 85% owned by CountPlus Limited ACN 126 990 832 (CountPlus) and 15% owned by Count Member Firm Pty Ltd ACN 633 983 490. CountPlus is listed on the Australian Stock Exchange. Count Member Firm Pty Ltd is owned by Count Member Firm DT Pty Ltd ACN 633 956 073 which holds the assets under a discretionary trust for certain beneficiaries including potentially some corporate authorised representatives of Count Financial Ltd. ‘Count’ and Count Wealth Accountants® are trading names of Count. Count advisers are authorised representatives of Count. Information in this document is based on current regulatory requirements and laws, as at 1 July 2020, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted by Count, its related entities, agents and employees for any loss arising from reliance on this document. This document contains general advice. It does not take account of your individual objectives, financial situation or needs. Should you wish to opt out of receiving direct marketing material from your adviser, please notify your adviser by email, phone or by writing to us.