Post-Divorce Financial Roadmap
Relationship breakdowns are a fact of life for many of us. They typically require a significant reset, with our financial lives being just one, albeit very significant, element.
Helping people get back on their feet financially following a divorce, and regaining confidence in their long-term outlook, is a common assignment for us here at Guidance. And whilst everyone’s circumstances and goals are unique, in this episode I thought I’d share with you a rough outline of what a post-divorce financial road map might look like. If you’re working through this phase of life at present, I hope you find it helpful.
Identify your goals
Previously your goals were intertwined with another person, and perhaps that meant compromises were made. With assets split, early retirement might now be off the table. Perhaps there’s no longer the need to remain in your current city, or even perhaps your current country. Everything’s on the table as you plan for your next chapter.
Spend some time exploring all the possible goals that you might wish to pursue. Go wide, then narrow them down. A road map won’t help if the destination is unclear.
How much longer will you be in the workforce?
With clarity here we can understand whether you need to be focusing on building your super, or clearing a mortgage, adjusting your spending, or starting an investment portfolio.
Post divorce there is a need to rebuild your asset base. Usually one member of the couple retains the home but has a low level of superannuation savings, whilst the other member of the couple often walks away with a large super balance, but not owning the roof over their head. Typically then, once goals have been clearly identified, we’re looking to solve for one of these two problems. The amount of years you have left in paid employment is a key input as to how you solve for either.
Housing
If you have come away from the divorce retaining the home, then the consideration needs to be how this plays out long term. Do you need to stay in the current home until the children have moved out, and then downsize, with the freed-up capital able to be used to boost your super? Perhaps you could downsize now if kids aren’t a consideration. Alternatively perhaps you’ve retained the home, but it comes attached with a mortgage. Are you able to sustain that mortgage?
On the other side of the fence, if you have left the relationship without a home, are you happy renting, or is it a priority for you to purchase quickly? If the asset split has been such that you have very large super balance, perhaps the home purchase needs to wait until you can access those funds.
Keep in mind the old saying that we can’t eat bricks. Post divorce there can be a temptation to end up with a balance sheet very heavily weighted towards the home, with little in the way of income producing assets that will provide you with a comfortable lifestyle, particularly once you have retired.
Cashflow Clarity
One of the biggest adjustments post-divorce is that the same household costs are now being carried by one income instead of two. Housing, utilities, insurances and groceries rarely halve just because the household has split in two.
Take the time to rebuild your personal budget so you understand what life now costs. From there you can decide whether the current arrangement is sustainable, or whether some changes are required.
Estate Planning
If you haven’t done so already, update the beneficiary details with your super fund. It may be that the appropriate course is to nominate your personal legal representative. If you choose this option it simply means that your super will feed into the rest of your estate and be dealt with in accordance with your Will. Upon death, superannuation is paid tax free to a spouse. But if it goes to adult children, there is some tax applicable, and you are unable to nominate anyone else, such as nieces and nephews or siblings. So this where just having it go into the broader pool of your estate may be best.
Sit down with your solicitor and talk this through in concert with having a new will prepared.
Insurance Review
Perhaps you previously had life insurance so that if you passed away your former partner would have enough to clear the mortgage or take some time out of the workforce. Post divorce, this need is no longer valid, and so the cost of this insurance is a waste.
Conversely, perhaps there’s a greater need for the likes of Trauma cover and Income Protection. When you were a couple, there was the extra security of knowing that if one of you suffered a significant illness or injury, the other would continue working and bringing income into the household. Now you must be self-reliant, making appropriate personal insurance far more important.
Divorce can leave people feeling financially uncertain, even if they are in a perfectly stable position. Take time to rebuild confidence in your decision-making. The goal is not to solve everything immediately, but to gradually put the pieces back together in a way that supports the next phase of your life.
If you need help, schedule a no-obligation initial meeting here.
Post Divorce Roadmap
Identify your goals
How much longer will you be in the workforce?
Housing
Cashflow clarity
Estate Planning
Insurance review
Need financial advice for your divorce or separation? That’s exactly what we do at Guidance Financial Services. Learn more below.
