Financial security after a divorce

Ending a long-term marriage, in most cases, will fracture family finances, and it is relatively common. The ABS suggests that 41% of marriages end in divorce within 9 years. I mentioned this because it’s important to remember that you are not alone, and your financial life isn’t over. Even if you’ve had to split assets down the middle, you still have a solid foundation to build on. For example, if a couple with a $5 million estate parts ways, each might walk away with around $2.5 million in assets. When managed wisely, that remaining wealth can still provide lifelong financial security. It’s all about what you do next.

You can maintain a lifestyle and keep retirement plans despite the split by reassessing your goals and making informed decisions. Divorce might change your circumstances, but it doesn’t define your financial destiny.

Here are the basics to get you started:

• Budget and cashflow management: Revisit your budget based on one household’s income or your share of assets. Outline your living expenses and ensure your standard of living is sustainable on your terms. This might mean adjusting spending habits that were manageable with two incomes, but it doesn’t mean sacrificing comfort; it just means planning smarter.
• Debt and liquidity: If you assumed any debts, such as a mortgage to buy out your partner’s share of a property or a business loan, plan how to manage or refinance them. Ensure you keep an emergency fund for liquidity, especially if legal costs or new housing expenses arise from the divorce.
• Estate planning updates: Update your will, trusts, and beneficiary designations on superannuation and life insurance to reflect your new situation. This ensures your wealth will go where you intend.

Don’t underestimate how a financial plan can give you clarity. Having a series of manageable steps leading to a long-term goal will eliminate the guesswork and give you back a sense of financial purpose. This is where an experienced financial advisor will be an invaluable resource. We have the expertise to review your financial situation and provide forward-thinking advice that will put your money to work.

For most Australians, superannuation is often the bedrock of retirement planning. Divorce can directly impact superannuation. Superannuation savings are usually considered joint assets that are split or offset in a settlement. A depleted superannuation balance will cause a level of anxiety, and many people we see are rightfully concerned about whether they will be able to retire as planned. As a general outcome post-divorce, your superannuation balance will be weakened, and your plans will need adjusting. The important thing here is to understand that super remains one of the most tax-effective ways to build wealth for retirement.

Even after a split, every dollar in your super works for you in a low-tax environment. You can take steps to maximise this advantage, such as making additional contributions if cash flow allows or utilising catch-up contribution provisions if you have unused caps. If you’re over 55 and transitioning to retirement, explore strategies like a transition-to-retirement pension that could boost your income while preserving capital.

With help from your financial advisor, review your super fund and investment strategy: Ensure your current super fund aligns with your needs. Are the investment options appropriate for your time horizon and risk tolerance now that you’re planning solo? It may be worth seeking advice on whether a more tailored approach, for instance, a self-managed superannuation fund (SMSF), could benefit you.

You will need to recalculate your retirement income projections. With your adviser’s help, factor in your post-divorce super balance, any investments, and potential Age Pension eligibility if relevant. You might need to adjust the retirement age you target or slightly modify your expected retirement spending, but these adjustments can be minor with proactive planning. Remember, you can retire confident you have enough, as long as you plan for it and make informed decisions as soon as possible.

High net worth divorces often involve complex assets like investment properties or private businesses. Untangling these in a settlement can be challenging, but there are ways to emerge in a strong position. Let’s address two common scenarios:

Real estate: Perhaps you and your former spouse owned multiple properties, such as a family home, a holiday house, or investment apartments. After a divorce, you might have sold some properties to split the equity or kept the family home while the other kept equivalent investments. With fewer properties in your portfolio now, focus on maximising your real estate holdings. For instance, if you retained an investment property, ensure it’s structured tax-effectively, with appropriate debt levels, perhaps negative gearing benefits if applicable.

If you sold property and have substantial cash, you could reinvest in real estate on your own terms, create a smaller property portfolio, or diversify into other assets. Downsizing is another consideration: some divorced individuals choose to buy a smaller home for themselves, freeing up capital that can be invested to generate income. A First Financial adviser can help analyse whether keeping property or reinvesting the proceeds will best meet your long-term goals.

Business ownership: If you co-owned a business, divorce might have required one partner to buy out the other or to sell the business entirely. If you continue the business, you will face the task of running it with potentially changed finances. It’s vital to separate personal financial security from the business. Work with your adviser to ensure you have adequate income outside the business and a succession or exit plan for the future. You may need to adjust how profits are taken or saved to rebuild your personal wealth after the buyout.

On the other hand, if you exited a shared business and received a payout, you’ll want to invest that lump sum wisely, perhaps to start a new venture, or more likely to build a diversified portfolio that doesn’t depend on one company’s fortunes. In either case, professional advice is key. Decisions around tax, structuring, and investment when business assets are involved can be complex. The right strategy can turn a potentially disruptive transition into an opportunity.

The primary takeaway is that the emotional burden of a divorce is draining, and financial upheaval can compound an already difficult time. We can help with the financial planning process after divorce by removing emotion and working with facts and data to get you on an even footing and work toward a healthy and financially secure future.

The team at First Financial are the financial experts and can help you navigate your financial situation after a divorce. We have the processes and knowledge to help build your financial plan for a secure future. Speak with us today, you’ll be glad you did.

Read more financial planning and goal-setting articles.