How Financial Planners can assist clients through a Divorce

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Whilst in the process of, or after a divorce we can help you to make good financial decisions. We know it can be a time of stress and uncertainty, and having an objective professional in your corner can be invaluable.

During a divorce, we can assist in identifying the value of your assets and advise on which assets you should preference keeping in relation to your likely future circumstances, goals and objectives.

Following a divorce, we can help you map out your new life ahead. You may want to know: 

• Whether to retain your current home, buy a new home or rent?

• Whether the feasibility of some of your goals have changed?

• Whether your working situation needs to change?

• How to manage your finances successfully going forward (especially if you have not typically managed the finances)?

Below are some recent examples of clients we have worked with going through a divorce:

Client 1: A Business Owner

In a divorce, being a business owner adds extra complexity. Businesses are difficult to value, and often, the value of a business can be a significant portion of the families overall wealth, making the asset split even more challenging.

Unlike liquid assets like cash (and even superannuation in divorce), it is difficult to split a business asset because:

• Selling shares in the business may not be practical if there are no available buyers.

• Selling shares in the business could trigger Capital Gains Tax.

• The performance of the business could be affected by share sales and new business partners.

• Each party could have wide differences in what they believe the business to be worth. For instance, the business could be valued on a multiple of profit, based on average growth rate or a value without the 'key person'. Depending on which calculation is used, the value of the business would be materially different.

• If the business is worth a high portion of the overall families wealth, if one party wishes to keep it, they may struggle to pay out the other party via other assets.

Recently, we worked with a client to help them retain their business whilst also providing for their ex-spouse and children via completing detailed long term modelling to show how the divorce split could work by splitting the payments across multiple years.

Both sides were happy with this outcome because it meant the business could be saved which was the asset in their situation which was growing the fastest and could be relied upon to continue to fund their living expenses.

Client 2: A Mum

We recently acted for a mother and her children to help create a financial roadmap. This involved using the settlement proceeds to maximise contributions into superannuation to set her up for her longer term retirement as well as setting up a family trust and investments for the now.

The investment earnings in her family trust could be utilised to pay for living expenses as it would be difficult for her to work whilst also acting as the primary care-giver.

In these situations, the power of financial modelling and projections cannot be understated to provide peace of mind for what the future looks like.

Client 3: A Father

Sometimes the size of asset pool post divorce will require challenging decisions. A common scenario involves deciding between:

• Using the proceeds as a deposit to purchase a new house or

• Using the proceeds to invest, whilst renting a house

We often find people are more inclined to rent when they want greater flexibility. This could be because they:

• Have significant but temporary cashflow expenses. The most common one here is they may need to pay for X amount of years more private schooling.

• They are unsure where they want to live as they set up the next phase of their life.

• They are unsure how much to spend on a house, and whether that will affect other goals such as retiring when they want.

To help with these decisions, we take the time to understand the important goals, objectives and considerations of the clients. We then work out what is possible through modelling, and when necessary, help the client priorities the goals and objectives to determine the best path forward.

Client 4: A Retiree

The early years of retirement are another common point of divorces. Being in retirement presents certain financial planning considerations such as:

• Restrictions around the ability to contribute money into the tax effective superannuation environment, especially as clients approach age 75.

• How assets and income will effect entitlements to the Government Age Pension from age 67 (if eligible).

• How clients can limit the total amount of tax they will pay each year in retirement by structuring their wealth across personal and superannuation investments.

Recently we acted for a client where we were able to:

• Retain a home to live in.

• Convert investment properties which were creating taxable income into tax free superannuation investments.

• Produce significantly more income by converting property investments into a superannuation income stream, allowing the retired client to live a far more comfortable retirement.

• Reduce future capital gains taxes for their adult children.

If you are unsure what to do next, you can book an obligation free chat below

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