The main objectives for most couples when dividing their assets after the trauma of separation are to:
- Achieve a fair split that reflects what each person 'put in', or contributed, during the relationship
- Reach agreement and have the matter dealt with as soon as possible; and
- Minimize any legal fees involved in the process
However, studies conducted by various investment organisations and social research bodies over the last decade show that an equally important goal, for both men at women, at the time of separation should also be active wealth planning.
The research further suggests that whilst many women end up "cashed up" after resolving family law property disputes, the types of settlements favoured by women when they separate have the potential to leave them in poverty during old age.
On the other hand, many men tend to agree to settlements that leave them "asset poor", but with income that will generate wealth to support them through old age.
A Common Mistake...
Imagine a young couple, let's call them Bill and Sue. They meet in their 20s at university, have a happy but short romance of a few years and are married just before graduation when then are both 24 years of age. Neither have any assets of significant value.
Both Bill and Sue find well-paying employment and start saving for a home. They save diligently for five or six years, then place a deposit on a home in an up-and-coming suburb on the outskirts of Sydney. They share their financial expenses and both contribute the minimum amount to their own superannuation. Bill moves jobs every two-three years to maximise his income. Sue does the same for a few years, but they decide together that they are able to manage their marriage better if they are not both commuting to the city. Sue takes a lower-paying job closer to home so that she can spend time with her own family, who live locally.
A few years later, they decide to start a family. After the baby is born, Sue takes extended leave. Bill and Sue have a further 2 children and although Sue works part-time between babies, her income does not increase notably, nor is she contributing more than token amounts to her superannuation. In the meantime, Bill's career has flourished. He has taken several significant pay rises, and when a partnership opportunity comes up, decides to take it.
By the time all of the children are in school, Sue decides to return to work three or four days per week. Her salary remains significantly the same because of her many breaks from the workforce. Her skills need updating but she maintains her position at her old salary as this allows her to care for the children, her own ageing parents (who live locally) and support Bill, who has significant work commitments due to the new partnership arrangement.
Bill and Sue increase their wealth over the years. Bill sees a financial planner and begins contributing large sums to his superannuation to plan for his and Sue's retirement. However, the constant pressures of working life take their toll on the marriage. Bill is away a lot on business, leaving Sue to look after the children. By the time the youngest child is at the end of primary school, their marriage is on the rocks and they separate.
At the time of separation, Bill and Sue have significant equity in their home. Their holiday investment property on the south coast, although not particularly valuable, requires little financial capital to be maintained. Bill has a large amount of superannuation, they each own a luxury car, and a small parcel of shares in a well-known bank.
Bill and Sue agree to split their assets 60/40 in Sue's favour, as they agree the three children should stay living with Sue in the former matrimonial home. To achieve this, Sue takes a greater share of the available assets, but no superannuation. Bill takes all of his superannuation, his car and the holiday home. Both are happy with the result.
However, economists and social scientists alike confirm that this type of settlement, favoured by people like Bill and Sue, has long-standing repercussions for both the husband and wife as they age and retire.
For many women, their aims at separation stem from a desire to secure a home for the children and minimize any ongoing mortgage repayments. However, limited participation in the workforce due to child-caring responsibilities, and the long-term consequence of this in terms of their ability to accumulate superannuation, means that women establish financial patterns that potentially leave them in poverty during old age. Additionally, when coupled with the substantial decrease in disposable household income that many women experience immediately after separation, it has an even greater negative impact on women's financial security in the long-term.
For men, the financial impacts of separation and family breakdown tend to have an initial negative impact on their net asset position. However, because many men experience an overall increase in their disposable income after separation, although their net asset position may be depleted after a property settlement with a former spouse, their higher disposable income enables them to recover financially more quickly.
Although superannuation can now be divided between spouses (both married and de facto couples) after separation, couples at separation can often opt not to divide the superannuation so that they can achieve goals such as Bill and Sue's above.
The reality for most couples at separation is that the financial consequences are significant and long lasting. However, careful financial planning during this difficult time may provide better longer term options for both men and women. It may therefore be worthwhile obtaining advice from a financial planner about wealth-management in conjunction with obtaining legal advice from an experienced family law practitioner about your options for property settlement.
As a first port of call, most financial institutions offer some type of independent financial planning services for their customers. Additionally, your own accountant may be able to provide an appropriate referral to a trusted financial consultant to help you minimize the effects of separation on your personal long-term wealth and financial security.
Once appropriate financial advice is available, an experienced Family Law Practitioner can assist with negotiating or pursuing a fair property settlement outcome with your former partner.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.