Divorce is not only emotionally distressing, it can also be financially devastating if not managed carefully. Here are some essential facts to help you navigate the complexities of a divorce settlement and get your retirement savings back on track.
Recent research led by the Australian Institute of Family Studies confirms what most people probably suspect – that a relationship breakdown can negatively affect your finances long after the divorce papers are signed.
Analysing data from more than 7,700 households gathered between 2001 and 2010, the research found that divorced single men have an average of $762,000 less in assets at age 55 than those who have stayed married, while divorced single women fall an average of $645,000 behind their married peers1.
Fortunately, it doesn’t have to be that way. While no-one can promise to make your divorce stress-free, professional financial and legal advice can help you navigate the complexities of Superannuation law and get your Super and investments back on track.
5 tips to remember
1. Close or freeze all your joint accounts.
2. Make a budget for your new life – and stick to it.
3. Update your will and your insurance, especially if you have children who rely on your income.
4. If you’re receiving any financial benefits such as childcare payments, make sure Centrelink knows your new circumstances.
5. Get support from family and friends.
What happens to your Super?
When you divorce, the law treats the Super you and your partner have saved as simply another asset to be divided up. However, because Super is a special class of investment which is preserved until you retire or meet some other condition of release, there are also some important differences in the way it is treated.
Like other assets, Super is not necessarily divided depending on how much each partner contributed financially. For example, a spouse who spends time working in the home and taking care of children, rather than in paid employment, may be entitled to a share of their partner’s Super.
You can split your Super with your spouse immediately. However, as Super is usually preserved, in most cases you will need to leave it in a Super Fund until you retire. Or you could decide that one person can take other assets worth the value of their share of the Super, leaving the Super intact.
If you decide to split your Super, you can do so through:
– a Superannuation agreement, outlining how you would like to split your Superannuation. As this is a legal document, it should be prepared by a lawyer.
– a Court Order, as part of a property settlement. This could be a consent order, or it may be required if you and your spouse are unable to reach an agreement independently.
Legally, the trustee of your Super Fund must follow a Superannuation agreement or court order.
One more point to keep in mind: these rules also apply to de facto relationships except in Western Australia. So apart from that exception, just because you aren’t married, it doesn’t mean you’re not entitled to your share.
Investing your Super settlement
Once your divorce or separation is finally settled, you may end up with a lump sum – sometimes a large amount. This is when it’s especially important to get the right kind of financial advice to make sure you put this money to work for your future.
A Financial Adviser can help you decide how best to invest your Super, depending on such matters as the amount of time you have before you retire, whether you still have dependent children and the level of risk you are comfortable with.
Getting back on track
Further once the settlement is complete, you should take stock of where you are financially, listing your financial assets and liabilities and working out how much you need to cover everyday costs of living. Keep in mind that it may take time to get used to living on a single income if you and your ex-partner both worked.
It’s essential to get good financial advice throughout and after the settlement.
A good Financial Adviser will be able to recommend some strategies to help you rebuild your Super if needed, such as salary sacrificing.
1Australian Institute of Family Studies (AIFS), The Financial Impact of Divorce, July 2012. Source: Colonial First State (summarised extract).
