Getting Divorced? This is Your Financial Roadmap

Imagine waking up one day and realising your carefully constructed financial future is hanging by a thread.

That's the harsh reality many people face when divorce strikes. It's not just a broken heart; it's a financial storm that can wreak havoc on your life.

The financial impact of divorce can be devastating, especially for couples over 40. For many, it means selling a family home, taking on new mortgage debt, and tapping into retirement savings. Let alone the impact on families and friends.

The immediate legal cost of divorce can vary widely, from an amicable arrangement which might cost a few thousand dollars to substantial sums exceeding $70,000, and the financial implications can feel overwhelming.

Read on for a guide to help equip you with the knowledge and tools to navigate the complexities of divorce and hopefully emerge stronger than you thought was possible.

The Harsh Reality of Divorce

One of Become Wealth’s most experienced advisers, Vinessa Orsbourn, says a “divorce in your 40s and early 50s can turn your financial world upside down”.

She says breakup for someone in Generation X “will have an impact on what kind of housing you can now have, when you can retire, and your dreams of what your retirement lifestyle will look like.”

She estimates that a divorce between 40 and 55 can delay retirement by a decade.

“You need to figure out where you can live, how you can save, and how to get some of those dreams back again,” she said.

When they should be stowing away money for retirement, many are faced with starting over.

“I’ve had many conversations with clients who are newly divorced who want to retire early and it’s just not possible,” Vinessa says. “That can be really hard for anyone to hear.”

‘It’s Like Water Torture’

Tim is a senior executive in a multinational company who negotiates with what he calls “the movers and shakers of New Zealand, people in the NZX top 50”.

He thought he knew how to deal with pressure. Then his divorce hit him like a hammer.

The father-of-two was faced with splitting assets with his wife, including a home in a well-to-do Auckland suburb. He told BusinessDesk the divorce took 19 months and he felt like his “whole life had exploded”.

“It’s like water torture. It just wears you down. You think you are on top of it, doing okay, but you’re not.”

Tim says he had a good lawyer, but “for a while, it got very nasty”.

“Lawyers have no vested interest in bringing arguments to a swift conclusion – their business model is about billable hours. Divorce arguments about assets can escalate so quickly. You look back and realise, that pointless back-and-forth with my ex ended up costing me $5,000 in legal fees.”

Kimberlee Sweeney, who runs a divorce coaching business in Auckland, told Businessdesk a lot of her male clients come to her because they need help with conversations around splitting assets.

“If they can sort through that before the lawyers, it saves a chunk of legal fees,” she says.

‘I Was Flat Broke’

Women can be particularly vulnerable financially in a divorce.

Studies show that globally around one in five women fall into poverty after divorce.

Many women find themselves unprepared financially after separation. Some haven't been involved in managing the family finances and are unaware of the couple's overall financial picture. This lack of knowledge can leave them vulnerable during divorce proceedings. They also may have stepped back from careers and subsequently have less earning potential.

“I was flat broke and needed to buy bread for the kids’ lunches,” Lisa told BusinessDesk.

The 44-year-old admits she was completely unprepared for how little money she’d have and resorted to searching for coins through the house during tough times.

“Because he understood money, my ex looked after all the accounts,” says the mother of two boys.

“And I trusted him to do so. But when he left me for a woman he met at the gym, it meant I had zero oversight of how much money we had, of our investments, or how much debt we were in.”

She told BusinessDesk that her ex-husband managed to tip the financial see-saw in his favour, and that included keeping the family’s Wellington home in their divorce settlement.

“I’d put so much blood, sweat, and tears into renovating that house and establishing a garden that it was hard to leave. By then, I was so ground down, I had to walk away.”

How to Manage Finances During Divorce

Lisa and Tim are just two examples of how the division of finances can be stressful during a divorce.

Let’s set out some steps you can take to protect yourself.

1. Reframe Your Finances

“You think you’re worth $2 million, but you’re actually worth $1 million”

Before any relationship split occurs, reframing your financial outlook to include worst-case scenarios, such as divorce, can lead to more informed long-term financial decisions.

For instance, many people equate owning multiple homes with financial stability and success. However, if those properties are jointly owned with a partner, the reality can shift dramatically in the event of a divorce. In this case, asset division during a divorce might leave you with only one home — or even less — depending on the settlement terms.

While it’s natural to focus on the positives of financial growth and asset accumulation, it’s equally crucial to plan for potential setbacks. A balanced perspective can help you make more resilient financial choices that accounts for both opportunities and risks.

2. Gather Your Financial Arsenal

• Prepare Yourself: If you sense divorce is a possibility, begin saving as much as possible to create a financial safety net.  You should make sure you have access to your own money. This will help you cover unexpected expenses during the divorce process. For instance, covering legal fees, if your partner stops paying for bills, or if you move out of the marital home. Update passwords for all accounts and online services.
• Collect Your Documents: Assemble your financial toolkit, including bank statements, tax returns, property deeds, and investment accounts. This will provide you with a clear picture of the overall financial landscape. 
• Inventory Your Assets and Debts: Create a detailed list of your shared possessions and liabilities. This will help you identify areas for negotiation and division. Carefully examine joint bank accounts, credit cards, and loans to help determine how they will be divided. 
• Keep Records: Maintain detailed records of all financial transactions, including income, expenses, and asset transfers. This documentation can be valuable during the divorce proceedings.

3. Division

• Discuss Finances Early: Open communication about finances helps minimise arguments and protects your interests.
• Predict possible obstacles: Is your partner difficult to negotiate with? Is there a business involved? Do you have multiple properties to sell? Are you going to divide assets equally or equitably? Will you be required to pay child support or maintenance?
• Establish Separate Accounts: Open individual bank accounts and credit cards to protect your financial independence and avoid any unexpected surprises. 
• Review KiwiSaver or Superannuation Scheme Accounts: Assess the value of your retirement savings and develop a plan to divide them equitably. Consider consulting with a financial adviser to understand the tax implications of withdrawing or transferring retirement funds.
• Freeze Unnecessary Accounts: Consider freezing credit cards to avoid unauthorised charges by your ex-partner. Switch utility bills to separate accounts to avoid future problems.
• Assess Your Assets: Determine the value of your shared assets and liabilities. A professional valuation can be helpful for complex assets.
• Understand Asset Types: Distinguish between depreciating assets (cars, boats) and appreciating assets (property, KiwiSaver).
• Negotiate Wisely: Work with your ex-partner to reach a fair agreement on property division and debt settlement. Consider mediation or arbitration if necessary. 
• Beware of Unrealistic Expectations: Aim for an amicable divorce to minimise legal costs and emotional distress. Amicable divorces can be relatively affordable, costing around $5,000-$10,000 with lawyers involved. Contested divorces can be costly, dragging on for years and costing thousands in legal fees alone.
• Focus on Long-Term Wellbeing: Don't prioritise short-term gains over your long-term financial stability and well-being.

4. Seek Professional Guidance

• Consult with a Lawyer: The Property (Relationships) Act broadly dictates a 50/50 split of relationship property and debts, but there can be exceptions to this and there are other factors to consider. A lawyer can provide legal advice and represent your interests during the divorce process.  Shop around. Compare lawyer fees and experience and ask for references. Choose someone you feel comfortable with and who understands your situation. A lawyer can explain your rights regarding property division, debt allocation, and child custody.
• Enlist a Financial Adviser: A financial adviser can help you develop a personalised financial plan and manage your assets effectively.
• It’s common to suffer from brain fog during times of stress so having experts across your proceedings is important. 

5. Stay Informed

• Keep up to date on financial trends and legal changes that may affect your situation.
• Attend financial education workshops or seminars to improve your financial knowledge.

6. Prioritise Your Well-being

• Divorce can be emotionally draining. Take care of your mental and physical health by seeking support from friends, family, or a therapist.
• Consider joining a support group for people going through divorce.
• Prioritise self-care and engage in activities that promote your well-being.

Related articles:

• ‍Financial Red Flags to Watch Out For in Your Partner‍
• Stay Together – Protect Your Wallet‍
• Prenuptial Agreements: Safeguarding Love and Assets‍
• How to Avoid Fights Over Money

How to Soften the Financial Blow

Separation can be a financially disruptive event, especially for couples going through it later in life. Often, couples come out worse off financially than if they had stayed together.  Here are some strategies to help couples divorcing navigate the financial complexities of this transition:

1. The Logistics

• Open a separate bank account to establish your own financial independence with a secure account.
• Change login credentials for all joint accounts you keep open.
• Stay up to date on essential bill payments to avoid financial hardship.
• Update beneficiaries. Ensure your will, life insurance policies, and retirement accounts reflect your new circumstances.

2. Manage Your Finances Wisely

• Develop a detailed budget to track your income and expenses and identify areas for savings.  Consider using budgeting tools or apps to help you stay organised. Monitoring your expenses will also help to understand your new financial reality as a single person.
• Assess your earning potential and explore opportunities to increase your income if necessary.
• Identify areas where you can reduce spending without compromising your quality of life.

3. Downsize Your Living Situation

• Consider selling your current home and purchasing a smaller, more affordable home.
• Renting or a tenant may be an option to reduce housing costs.

4. Protect Your Assets

• Update your will and beneficiaries. Ensure your will reflects your current relationship status and beneficiaries.
• Review your insurance coverage, including life, health, and property insurance, to ensure you have adequate protection, and make required changes to reflect your new domestic situation.
• Consider creating a trust to protect your assets and plan for your future.

5. Explore Government Benefits

• Research government programs and benefits that may be available to you, such as emergency support, child support, food assistance, or housing assistance.

6. Plan Your Children's Future

• Consider setting up a savings fund for your children.
• Review your child's insurance coverage and update beneficiaries as needed.

7. Seek Financial Counselling

A financial adviser can:

• Provide personalised advice and support to help you navigate the financial challenges of divorce.
• Help you develop a personalised financial plan and manage your assets effectively.

Avoid These Common Divorce Mistakes

Avoid:

• Skipping legal advice. Even amicable divorces will benefit from a lawyer's guidance.
• Ignoring your finances. Proactively address asset division and manage your financial future.
• Prioritising speed over fairness. Rushing through the process can lead to unfair outcomes.
• Taking emotional advice from outsiders. Rely on qualified professionals for legal, financial, or any other guidance.
• Using children as pawns. Protect your children from the emotional stress of the divorce.
• Neglecting to update legal documents. Ensure your will, beneficiary designations, and other documents reflect your new reality.

The Bottom Line: Divorce Doesn’t Have to Destroy Your Financial Future

Divorce can be a difficult time, but it's important to remember that it's also an opportunity for a fresh start. By taking control of your finances and focusing on your future, you can emerge from this challenging period stronger and more resilient.

Remember, you're not alone. Many people have successfully navigated the financial complexities of divorce and built thriving lives afterward. With the right strategies and support, you can do the same.

It’d be the pleasure of one of our trained professionals to help you work through any of the topics mentioned above, so get in touch today.