There's no denying that break ups are tough — and not just because of the emotional upheaval. For many people, coming to the end of a long-term relationship also goes hand in hand with financial uncertainty.
Every year in Australia, over 45,000 marriages come to an end.* And for the 10% of Australian adults living in de facto couples, a relationship split can be just as devastating as a divorce.**
But if you and your partner decide to call it a day, the good news is that it's possible to get back on your feet — both emotionally and financially. All it takes is some careful planning, so you can embrace your newfound independence while taking control of your finances at the same time.
Breaking up: the financial impact
Generally speaking, the wealth gap between newly single people and married couples widens in the first few years after a break up. The widest gap is usually around six years after the split, when a divorcee has an average of $360,000 to $390,000 less in household assets than a couple who stay together.***
On the bright side, you can still rebuild your finances to a healthy position if your relationship ends. First, find a lawyer who you trust to make sure you get a fair property settlement. Then, with the help of your financial adviser, reassess your income, assets and debts so you can revise your financial strategy to fit your new lifestyle.
How do property settlements work?
Although each case is unique, property settlements in Australia generally follow four basic steps. Under Australian law, the steps usually apply to de facto relationships as well as marriages.
Step 1. Value your assets
These may include things like your home, car, savings, super, investment properties, shares and businesses. You'll need to identify which assets are yours, which are your partners and which ones you own together. Then, you need to figure out how much each is worth — usually with the help of an independent valuer.
Step 2. Reach an agreement
Even if you agree amicably on how to split your assets, you'll still need lawyers to handle the paperwork. If you can't reach an agreement, you'll have to apply for a court order.
Step 3. Assess each partner's contribution
Your contributions to the relationship go beyond the financial ones like earning and income or paying off the mortgage. They may also include the time you've spent raising your children or taking care of the household. The court might consider other non-financial contributions as well, such as time and effort put into renovating your home.
Step 4. Work out future needs
When deciding on how to divide up your assets, a court will take into account the financial position of each partner after the split. This includes factors like your age, health and ability to earn an income, how long the relationship lasted, and your future role in taking care of your dependants. So if you earn less than your ex-partner, you may end up with more of the property — especially if you get custody of your children.
What happens to your super?
If your relationship ends, each partner's super may be treated as an asset that can be divided between the parties, which means part of your super balance might go to your partner or vice versa. For example, if you spent time out of the workforce to raise your children, then you may be entitled to a share of your ex-partner's super.
But unlike your other assets, you can't access your super until you reach a certain age. So while normally it would be divided up straight away, in some instances you and your spouse can make an agreement to split your super investments at some point down the track — for example, when one of you retires.
You can also use your super to offset other assets. This could mean, for instance, that your ex keeps all their super, but you receive other assets worth the same amount as the portion of the super you're entitled to.
Remember, whatever you choose to do with the family's super, it's best to speak to your financial adviser first. That way, you can make sure you don't end up on the back foot when it's time to retire.
If you need advice regarding the division of finances please contact our advisors on 03 8850 3333 or firstname.lastname@example.org.
*Australian Bureau of Statistics, Marriages and divorces, Australia, 2014
**Australian Bureau of Statistics, Census of population and housing, 2011
***Australian Institute of Family Studies, The financial impact of divorce, 2012