If you’re facing a divorce and property settlement, there are some simple steps you can take to avoid financial troubles down the track. As you and your spouse begin the process of unravelling your finances, here are 20 things you should consider doing to protect yourself from financial issues.
1. Establish your date of separation
Once you’ve decided to divorce, write down your official date of separation. The date of separation will be important in various ways when it comes to your property settlement. Firstly, to apply for a divorce, you and your spouse will have to have been separated for one year first. Secondly, for de facto relationships there will be time limits for your property settlement that start ticking from the date of separation. Thirdly, it may later become important whether certain financial decisions or transactions were done during the relationship or post-separation.
2. Identify all of your assets
Begin preparing a financial statement as this will be needed when it comes to a property settlement. Identifying your assets and liabilities is a vital preliminary step, so that you know exactly how much money you are dealing with. You’ll need to consider all kinds of assets, from property to cash to investments, as well as all kinds of liability, from mortgages to credit card debts and so on. Make sure you obtain current statements of the value of assets for certainty.
If you don’t want to deal with your ex directly, your lawyer can help you obtain full disclosure of all joint and individually owned financial assets.
3. Determine ownership
Next, figure out who owns what. Determining what is in your name and what is in your spouse’s will assist in determining what Orders are needed to deal and whether ownership needs to be transferred.
The aim is to end up with have an accurate picture of the grand total of what you and your ex own, separately and jointly.
4. Transfer half your joint bank balance to your separate account
In a lot of circumstances it can be best to unravel the financial ties wherever possible. So, have a conversation with your ex about any joint bank accounts and how the two of you will manage the balance. If you are concerned that your ex will remove or deplete savings, contact us for legal advice as soon as possible.
Consider whether you need to update any sources of income and direct debit arrangements to a new account in your sole name, or if you and your ex have agreed for certain payments to continue in your joint account.
5. Be careful about post-separation spending
During a property settlement, a Court may decide how to split any joint funds. If you have spent any joint funds, the Court will take this into account, including how much was spent and what the funds were spent on. The Court will also be attuned to any impact that post-separation spending has on the marital asset pool and make any adjustments required to create an equitable result.
If you are uncertain about how you should safely spend your money during a divorce, make sure you speak with a family lawyer for clarity. You and your spouse both need to avoid wasteful discretionary spending as it can come back to haunt you in the final settlement.
6. Create a budget
This will help you look forward and prepare for single life. It will also help you to feel you have some control over your financial situation. You’ll be able to work out where your essential spending goes as opposed to your discretionary spending. And if need be, it will make it easier to reduce the discretionary spending elements.
7. Set up an emergency fund
You might like to open a second private bank account exclusively for your emergency fund. Having a rainy-day fund is vital when you are going through the uncertainty of a divorce. Experts suggest trying to keep a couple of thousand dollars in your emergency fund, if you can.
8. Gather documents
Make paper copies of all documents (eg tax returns, credit card and loan agreements, financial statements). Documentation showing proof of ownership is especially important. Don’t rely on electronic copies in case you ever find you have an issue getting locked out of your email account.
9. Get a copy of your credit report
Obtain your credit report and go through it carefully and check for any errors.
10. Never try to hide money
Sometimes people think they should strategically shift funds to secret accounts to pre-empt a spouse doing something with the funds. But due to the rules around your duty of disclosure, it’s a bad idea. You’ll lose credibility with the Court and typically ramp up your legal fees as the whole divorce becomes more contentious.
11. Figure out what you need
Ultimately, you need to reach an agreement that covers your practical necessities going forward, into the long-term future. If you aren’t sure about what these needs really are, then it’s very difficult to work out if you are reaching a good deal. Therefore, make sure get some clarity on what you want and need—ie. what is most important to you in the outcome? How much money will you need to ensure a certain standard of living for yourself and the kids? How much would you need for a deposit for a new home? Entering negotiations knowing what you need to achieve will help you stay on track and avoid making mistakes.
12. Consider how taxes will impact assets
It’s important to get tax advice from an accountant to check if you are taking on assets that would mean you are solely liable for any tax implications and know what the possible tax is so that this can be taken into consideration in any final property settlement.
13. Don’t be overly attached to the house
Sometimes the emotional attachment we can have to our homes can cloud our judgment. Consider whether the family home is actually going to be beneficial to you, if you factor in mortgage payments, maintenance and upkeep. It may be that receiving a different kind of asset makes much more financial sense, even if it means moving and perhaps even downsizing.
14. Get expert help
If you were the less financially savvy spouse, having to come to grips with the financial side of divorce can be very difficult. It can definitely help to hire a trusted financial adviser to help explain outcomes and scenarios to you. But even those savvy with finances can still benefit from adding a financial adviser to their team, to provide that objective, unbiased advice.
15. Change your will
Along with updating insurance policies of all kinds and beneficiaries of your superannuation entitlements, make sure you update your will and Enduring Power of Attorney when you separate. You do not need to wait until your property matters are finalised.
16. Have a Binding Financial Agreement
Having a Binding Financial Agreement (aka a prenup) is one of the best ways to protect your wealth during a divorce. Having the agreement in place can save you from a lengthy legal battle over assets and having to pay expensive legal fees. The agreement will spell out how assets and liabilities will be dealt with if you and your spouse separate. It can also spell out how spouses will deal with the financial arrangements for children or other dependants. It’s important to understand that BFAs are intended to protect both parties, not just the one with more assets.
17. Try to work things out between you
See if there is any way you and your spouse can reach agreement on any of the issues in dispute without having to involve lawyers (or mediators). You might find you are able to work some things out, if not everything, and thereby narrow the issues in dispute.
18. Explore mediation
If you and your ex will be heading to court to finalise a property settlement, you’ll need to first make a genuine attempt at dispute resolution without litigation. For instance, you and your spouse might attend mediation to work out your divorce agreement.
19. If you hire a lawyer, try to use them as little as you can
Remember that most lawyers charge by the hour. So you’ll want to limit your communications with your lawyer to the important issues that you need legal advice on. Don’t mistake them for a shoulder to cry on—know that the meter is always running, and besides, your family lawyer is not a qualified counsellor. Don’t be afraid to ask legal questions of your lawyer and keep them appropriately updated on your matter, but be mindful of costs.
20. Get your lawyer to help protect you
If you are concerned your spouse might drain your joint funds, your lawyer can help you freeze accounts that may be at risk. They can also help you obtain an interim property settlement if you need funds for living expenses and legal fees. And when it comes to a final property settlement, your lawyer can work out how to allocate amounts in the balance sheet to wastage by your spouse (such as if they have gambled away cash, or otherwise transferred joint funds). That way, an adjustment can be made in your favour by the court.
If you would like assistance with a family law matter, please contact Canberra family lawyer Cristina Huesch or one of our other experienced solicitors here at Alliance Family Law on (02) 6223 2400.
Please note our blogs are not legal advice. For information on how to obtain the correct legal advice, please contact Alliance Family Law.