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Dealing with divorce

It can take women longer to get back on their feet financially after divorce than men. So start your good habits now. Writer: Barbara Drury.

Jenni* had a career, an apartment and money in the bank when she married Peter.* When they divorced 10 years later she had been out of the workforce for seven years looking after their two young sons and all assets they owned were in Peter’s name.

“I took my eyes off the financial ball which was a big mistake,” she says.

In the property settlement that followed, Jenni opted for the family home rather than uncertain maintenance payments. She also needed to upgrade her skills to get back into the workforce.

This is not uncommon – many women receive control of the marital home on separation. However, the immediate sense of security this provides should be considered against other settlement options, and your financial position.

Mind the gender gap

Although the divorce rate has been declining in Australia, one in three marriages still ends in divorce. And according to the Australian Bureau of Statistics, those couples who do decide to call it a day are getting older. In 2013 the median age at divorce was 42 for women and 44 for men. A decade earlier it was 36 for women and 39 for men.

What hasn’t changed is that women take a bigger hit to their finances after divorce.

According to a 2014 study by the Australian Institute of Family Studies, one year after separation, women were 21 per cent worse off financially than their married friends. Men’s incomes were broadly the same as their non-separated peers.

It can take years to recover financially from divorce, especially for women such as Jenni who were already earning less than their partner when divorce came along and remain the primary carer of children.

Good financial habits begun while you are married will make life easier for you while in a relationship and in the event of a break up.

  

Plan ahead

In most marriages there is some division of responsibilities and often it’s the husband who takes care of household finances and investments.

ANZ Financial Planner Judy Hughes says it’s important for women to know what assets they have as a couple and whose name they are held in. This will make it easier to negotiate your fair share in any settlement.

Women who take time out of the workforce to care for children fare badly when it comes to retirement savings, a situation made worse by divorce.

While a partner’s super is taken into account in the division of property, women with children often settle for the family home instead. This is understandable, but the sooner you can start making even small contributions to super, before and after divorce, the more secure your future will be.

During divorce

When divorce is inevitable or under way, if you don’t already have a separate bank account, Hughes recommends opening one now. “Start directing your pay and any savings into your own account.”

Now is also the time to seek legal advice about separating property held in joint names or preventing the sale of property held in your partner’s name before a final settlement.

Hughes says people often get fixated on keeping the family home or particular assets. She encourages women to avoid knee-jerk reactions at what can be an emotional time and think about long-term financial security.

“I urge people to look at various scenarios. If you keep the home, will you be able to pay the mortgage and maintain it? If you sell, what would your share be? Where can you afford to buy or should you rent?”

After divorce

The most important thing you can do after divorce, if you haven’t already done so, is to draw up a budget. This is especially the case if your partner previously handled the finances.

Suddenly you are looking at a new lifestyle not knowing what the cost of living will be. “If you work out you need $1000 a week to afford your new living arrangements, ask yourself: ‘How am I going to do that? What options have I got?’,” says Hughes.

Be sure to include any Centrelink and Medicare benefits you may be eligible for, especially if you have young children.

If you previously had joint insurance policies it’s time to review your cover. Now you are responsible for a mortgage or rent, investigating income protection insurance should be a priority.

“You also need to make a new will to protect your children. Many people don’t realise that an existing will is only invalid if you remarry,” says Hughes.

Divorce is never easy, but handled well, you can limit the financial and even personal damage you may incur.

Now Jenni’s children are almost independent, she is running her own successful small business.

“I wanted to be master of my own financial destiny. It was a hard slog but I wouldn’t have achieved what I’ve done otherwise,” says Jenni.

*Not their real names.