Time to read : 4 Minutes
A Basic Step By Step Guide To Help You Prepare For Financial Divorce
Remember when you held hands, kissed goodnight, finished food from each other’s plates and had joint savings accounts?
Then you decided to separate (or even divorce).
When you end the emotional union of a romantic relationship, the financial connection also usually comes to a grinding halt. And for couples who share major assets (as well as children) together, divorcing your finances can be stressful and costly.
To help you understand what’s involved in divorcing your finances, read on …
Step 1: Organise your paperwork
Sharing a life with someone else means storing a lot of important documents.
Start by gathering yours – your passport, your birth certificate, as well as your marriage certificate and any other important documents that link you. If you own property together, title documents are also important. You’ll need to each end up with certified copies.
Next, look at shared bills and accounts with joint names – and that might mean everything from bank accounts to gas bills and internet connections.
Finding them all and storing them in the one place will help you figure out what needs to be duplicated and certified, what you can start removing your name from and what you need to share with your lawyer to help finalise who needs to pay who – and how much.
Step 2: Update your accounts
Once you’ve gathered all your shared financial documents, you can begin the process of separating your money. If you’re already engaged with a lawyer, this is something you need to talk about with them. Whatever you do, document it.
If you haven’t had your own bank account while in your relationship, opening a new one is a good start. If you’ve already stopped living together, you’ll obviously need your own account to manage your independent bills. Make sure your income or any benefits get paid into this individual account so your money is in one location that nobody else has access to.
Look at changing your nominated beneficiary on your life insurance and superannuation.
Step 3: Divide your assets
If you own property and assets jointly, this is where it gets complicated.
Even if you don’t have assets in joint names, the rules around family law is about ‘pooling’ all individually and jointly owned assets, and working out how it will be divided.
Whether you have children, how long you’ve been together, what each person’s responsibilities within the relationship were (Did one partner sacrifice their career to focus on looking after family and the household? Did one partner work within the business owned by the other partner?) and what each partner brought to the relationship all have an impact on the ultimate division of assets.
If you can work together in a way that’s friendly and fair, the money and time you’ll save on legal battles will be significant. Unfortunately, though, it’s often much easier said than done.
Step 4: Do a stocktake of your finances
Make a list of all your assets (individual and shared). Include a rough estimate of the value of each item. The list should include every possible time – from furniture to white goods, cars, investments, properties, superannuation and joint debts.
By crunching the numbers and understanding your assets and your liabilities, you’ll start to calculate a clearer picture of what a separation of your finances will look like for everyone involved.
Step 5: Get legal advice
Depending on your circumstances and financial position, accessing free legal advice may be an option.
If not, legal support can be costly. But to finalise aspects of your relationship, it’s something you can’t do without.
At a bare minimum, both parties separating need to document the agreed division of their assets with a binding financial agreement. Ignore it at your peril because, without an official legal agreement that documents your financial separation, the risk is that legal action can be taken later – and if your future financial position is even stronger (if you receive an inheritance, for example). What you don’t want is your former partner taking a slice of money you haven’t even earned yet – and that can happen if divorcing your finances is not done properly.
The bottom line
Although it can seem overwhelming and upsetting – especially in the earliest stages of a break-up – separating finances can’t be ignored. If it is, it could come back to haunt you years from now – and that may turn out to be expensive.
Divorce is not uncommon; you can see a list of divorce statistics here.
If you're struggling, consider talking to a financial counsellor.
Go deeper: The true cost of divorce
Financial disclaimer
The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.
