Protecting your finances during separation

The end of a relationship is a difficult time, and separating from a partner can be a gruelling process.

In a heightened emotional state, things can get messy quickly and you can find yourself facing not only the breakdown of your relationship but also dramatic changes to your financial stability.

It’s important that you take steps early on to secure your financial position by seeking appropriate legal and financial advice. You need to make sure that you receive your entitlements and that there is a fair separation of assets.

We spoke with John Spender, Principal at Kennedy Partners, about how to protect yourself financially during separation.

When the conversation around separation begins, the first question you should ask is – ‘Will there be any division of assets?’ John says:

“In most cases there will be asset or property division, but sometimes there will not be. For example, if the de facto relationship is less than two years old and there are no children. In fact, even clarifying whether the relationship is classified as ‘de facto’ is a necessary first step, as this is not always entirely clear, especially if the parties are living separately.

There can even be disputes around whether division is necessary when the parties are married, but they have kept all their assets entirely separate from each other. If there are separate bank accounts, and nothing in joint names, the Court may not order a property division. This was the outcome after a 27 year same sex relationship when the finances had been entirely separated throughout the relationship.”

If there is to be division of assets, then it is recommended to seek advice quickly, rather than start making decisions on your own. John continues:

“Get advice early about what you should do… and also what you shouldn’t do before you split. If you can, it’s best to have some solid knowledge about your finances and even have a rough value of yours and any joint assets. The more information you have when you meet with an adviser, the better advice they can offer.”

Even in the most amicable separations, legal advice is beneficial, as there are financial ramifications that you might not be aware of. Legal binding agreements are a critical element of asset divisions and there are advantages to seeking professional services to manage the process. John explains,

“Many people may think ‘we are amicable, we can do it ourselves’ but I would urge people to get some advice and create formal documents – either through a consent order, or a financial agreement, as these are the only two ways to achieve a binding agreement.

Unfortunately, informal handwritten documents or ‘handshake agreements’ are not binding, and people can change their mind and potentially come back at a later date asking for more.

There are also stamp duty advantages that can be achieved from obtaining an order or agreement. Further, if you have an investment property, the ownership transfer would normally attract capital gains tax, but if the transfer is pursuant to an order or agreement, the tax is not applied until the party who received the property eventually sells it.”

One of the key issues during a separation is – ‘Who will stay in the house?’ and often it will be the parent who looks after the children. But this isn’t always the case, especially if one party has owned the property for a long time before the relationship began. Every circumstance is different, but John highlights the fact that leaving isn’t always the best idea.

“Once you leave the house, you lose certain advantages. If there is a contest about who is going to keep the house in a settlement, when you move out, you’re already on the back foot. While you haven’t relinquished your right to a share in the equity in the property, the court is likely to offer the other party the first option to keep it… because they are still living in it. This is why we recommend seeking advice before you even start to pack your bags.

If you are going to go, then you should take what you want with you. Personal documents, any specific items that you want to keep and potentially negotiate a reasonable share of the big-ticket items. But remember, if the children are going to remain in the house and you leave, you might end up seeing them less often. Negotiating time to see them could be challenging so it might be better to stay – even if it is not very pleasant sharing the premises with your ex-partner or spouse.

Naturally, though, every case turns on its own facts. If there has been domestic violence or the situation is extremely tense, leaving may well be the best decision.”

Of course, if the relationship is toxic or there are safety concerns, staying might not be an option, and in this case, there are legal avenues to assist you. Again, seeking legal advice is recommended to make sure you receive information that is relevant to your situation.

It’s not uncommon for partners to have joint financial accounts, and when the separation process starts this needs to be addressed. John points out that there are many variables that need to be considered depending on your personal position:

“If you have your salary automatically paid into a joint bank account, you might choose to stop doing that, but it really is subject to your particular situation. You might want to freeze the account or make it an account which both parties sign off on so that both parties always need to approve any withdrawals. Or you might even negotiate to take equal parts of the funds in the account. But it is important to be alert to any problems that may arise if the other party takes it all.

Always try to look at the big picture though… if they did take all the money, but you have many other assets, the overall court-determined entitlements will take this into consideration. Individual circumstances play a huge role in the outcomes… every single situation is different and therefore the way in which you approach the situation will always vary.”

When John first meets with a client, there are a number of additional considerations he highlights that are easily overlooked.

“I always ask if you have any shared email addresses or any shared cloud computing. Throughout the process I’m going to have to talk to my client confidentially, so it’s critical that we have a secure private line. If there is any shared cloud this communication could be compromised.”

Child support can also be easily addressed and, if eligible, you can apply directly through Services Australia. Parenting benefits and other financial support are determined by income tax figures and the negotiated parenting arrangements.

Finally, it is recommended to settle sooner rather than later. Circumstances can change once people are separated, but the courts will base their decisions on the assets shared at the hearing date – not the separation date. If you acquire new assets after you’ve separated but before you’ve been to court, it’s possible that they will be incorporated into the settlement.

Once the separation is finalised and legal proceedings complete, it’s important to make sure that whatever financial settlement you receive is well managed. This is where the team at First Financial can help.

Our professional Financial Advisers can offer guidance on how to make your settlement last and help you secure your financial future. If you’d like to find out more, please contact us today.

Please note – the information in this article is of a general nature only. We urge all readers to obtain specific legal and financial advice from an appropriately qualified professional when making decisions about their situations. Read more Financial Planning articles.