Divorce is an ugly beast, a disease of the mind and the heart. It eats away at the soul, ravaging lives, leaving its hooks embedded in the psyche for life.
Divorce and separation are fast becoming a core part of my practice, and whilst several of my clients prepare themselves for the onslaught of financial negotiations with once beloved former lovers and best friends, I’m crunching the numbers and reflecting on the big picture. “The divorce epidemic is spreading,” says my friend this morning. Perhaps, or maybe I’m just seeing a lot of it and have confirmation bias.
For many of the women with whom I work, their diagnosis was utterly unexpected. Truly, “I didn’t see it coming,” has many forms. Unfortunately for many, when the diagnosis is confirmed there’s an ugly financial reality left behind.
My brief, part one, alongside the legal negotiator with whom I work in tandem, is to structure the financials behind the negotiations and ensure that their financial ask is enough to provide a degree of certainty and security for the future. It’s not always easy, nor is it a simple case of ‘go for as much as you can get.’ Blurgh, no-one wins that negotiation, and fairness is a governing factor.
The nuts of it are aspects like, do you split super and take it as actual super, or take cash instead? Do you accept the income payment offered by his lawyers or negotiate cash up front? How much do you really need to live on? Should you buy a house on settlement? (9 times out of 10, no, not straight away). That’s part two and beyond, there’s a lot more wiggling to do first.
For my clients and I, our team’s journey starts with the real hard work, not later when settlement is over, like many other advisers. Mediation and collaborative law are all very well but it’s all a bit pointless if you’re negotiating the numbers without really understanding how something as fundamental as a super scheme works or how to structure and mitigate your risk. That’s what I do, amongst other things, in case you were wondering…..?
Ah, Debt the Destroyer
Talking of buying houses, for a while back there during the Global Financial Crisis of 2008/9/10, there was a sense that banks were scaling back their lending to more sensible levels. I’m not seeing this in practice.
Many of the people walking through my doors are producing spreadsheets showing homes geared at more than 90%. This means that they own only 10% or less, the laundry perhaps, of their homes. Home mortgages of $1 million or more are commonplace well into age forty and beyond. (Gearing is a term for the level of borrowing compared to the value of the asset the loan is secured against).
Often on divorce, after division of assets, real estate fees, conveyancing fees et al, both husband and wife are left with nothing on sale of the family home, or worse, a debt because they’re forced sellers in a weak market. With high levels of gearing we’re staring down the barrel of negative equity where they owe more than the house is worth.
It’s a reality that most women cannot afford to service the debt themselves, even with spousal maintenance and child support payments from the former spouse, so yes, they’re forced to sell up and move out. I say ‘women’ because that’s who I’m focused on here but neither party wins in this situation. Another no win.
Future earnings and the S word
“I gave up work to look after my children,” several clients tell me. Now they’re 50, haven’t worked for more than 10-20 years, have no assets because the family were over extended with debt based on his income only, and she can’t find work because companies all seem to be focused on hiring Gen Y and graduates.
Yes she’s been able to claim a share of his super through the family court, as much as 75% in some cases but that’s not much use until after she turns 55 when she can start a Transition to Retirement Strategy and extract between 4% and 10% as income. Or as an alternative, her former spouse could settle the payment in cash instead of a super split, so she’d have some cash on which to live, but what happens when she’s older and cannot work at all? Which way does she go? No wonder that without the right advice and support it often ends up in the too hard basket and she rolls over and gives up.
I could go on, this topic is enormously rich, or not. However, the motivation to write this little post was triggered by an email I received this week from someone I know, not too well but well enough to know there are some ‘issues’ in her marriage. It went something like this, ” Hi Sara, so lovely to see your fresh new website and get your email but I’ll unsubscribe if you don’t mind because my husband, <insert name here> does all the finances in our family and insists on keeping control. So much as I like what you’re writing and admire what you’re doing, I don’t really need financial knowledge right now because he’s professionally trained in finance. Ok?”
I’d write ‘face palm’ if it weren’t so serious. But one thing I’ve learned in this game is that people come when they’re ready; it’s never too late ,but goodness, there’s always a much better outcome for all concerned if we women get more involved with finance at an earlier stage.
And, let’s be clear about one thing, taking a financial interest either because it turns you on or because you’re protecting your interests, does not hasten the decline of a marriage. In fact, quite the opposite. If done collaboratively, it can create team work, aligned goals, common effort and focus and you know what, you just might think of some angles that he hasn’t. One thing’s for sure too, you wont be beating yourself up down the track because you didn’t speak up when you knew you needed to.
My clients all rock, every single one of them. They’re smart, brave and putting their lives back together admirably. They’re setting themselves up to work too, so if you’re reading this and need to hire a strong woman who’s had some real obstacles to overcome but is ready to take on the world, you’d better let me know because at this rate I’m soon going to have an awesome recruiting business too.
In the meantime though, I’m thinking of running some more Kitchen Tables for women in separation circumstances to run them through some of the financial aspects they need to think about to get their affairs in order? Do you know how to super split on divorce? Or how to manage your budget or your income risk?
No? Neither do most people, so if you know someone who would be keen for an evening of warm and approachable discussion and education around this topic and other related questions, do shoot me an email at firstname.lastname@example.org and if there’s enough demand we’ll get some going.
Onward…..I have a strategy to write for a lady whose financial negotiation is coming up.
Plan. Collaborate. Act. Life is short, there are no unicorns coming to save you.This information is of general nature only and is not intended as a personal advice. It does not take into account your particular investment objectives, financial situation and needs. Before making a financial decision you should assess whether the advice is appropriate to your individual investment objectives, financial situation and particular needs. We recommend you consult a professional financial adviser who will assist you. As at the date of this article, Sara Lucas was a licensed professional financial adviser, an Authorised Representative of Fitzpatricks Dealer Group Pty Limited ABN 33 093 667 595 AFSL 247429 .