Practical ways to take control of personal finances after a divorce
The key to managing finances after a divorce is getting organised early. This article provides some tips on taking control at the right time.
Divorce can be one of the most financially stressful experiences of an individual’s life. The key to taking control is to get organised early. Acting quickly to arrange accounts, update details and make financial plans may help those in the process of divorce or about to be divorced start the next phase of their life with more peace of mind.
The following six steps can be a good place to start.
1. Get organised
It’s important to keep track of key dates, such as when the separation occurred. It’s also a good idea to inform the post office if one party moves out, so they can continue receiving mail at the new address.
Next, both parties should gather all financial information, making sure there are copies of all documents. They should also write a list of all financial and property assets, liabilities and policies, making a note of whose name each document is registered under.
These may include:
- bank, brokerage or investment accounts
- credit cards
- vehicle registration
- life, health, home, car and other insurance policies
- utility bills for electricity, gas, internet and phone
- property documents such as deeds, mortgage papers and home loan details
- recent tax returns and tax file numbers
- superannuation account details
- wills and estate plans
- rental agreements or leases.
2. Close joint accounts
Close any joint accounts as soon as possible, it’s important to close accounts or credit cards that are in both parties’ names, and cancel any redraw facilities. This will protect the finances of each individual and ensure no more debt accumulates.
Each party can then open an account in their own name, which only they can access. They will also need to redirect any income that previously entered a shared account into this new account.
3. Review your finances
The parties will need to update any remaining accounts, loans or policies so they are registered in just one individual’s name. Some areas that may require updating include:
• Insurance: It’s crucial to update insurance policies as any individual not named will not be covered. This individual will need to make sure that they have other cover in place that is adequate and affordable for their needs. Also, remember to update any nominated beneficiaries on new or existing policies.
• Loans: The person whose name is on a loan agreement is responsible for any debt, regardless of changed personal circumstances. It’s vital for the necessary party to remove their name or for both individuals to pay off the loan.
• Superannuation: Superannuation is a significant financial asset. Any nominated beneficiaries of the parties’ retirement nest eggs will need to be updated.
• Rent and Utilities: Updating rental agreements and utilities will also be crucial, as the listed person may be left with damage or unpaid bills to cover.
4. Change wills, etc.
Remember to change your will, Powers of Attorney and beneficiaries. Many Australians don’t realise that divorce can affect their will. Different states have different laws. It is vital to update wills to reflect new circumstances as soon as possible.
To be valid, a will needs to be signed by two witnesses. Drawing up a will can be complex so it may be best to consult a solicitor, trustee and or your financial adviser who may be able to provide preliminary advice and or refer you onto a trusted professional.
5. Create a new budget
It can take time to adjust to relying on only one income. Creating a budget and financial plan if you do not already have one is an important step.
Your financial adviser can assist you in addressing this early on, which should make it easier to track expenses and feel confident that bills and payments will be covered.
6. Reach out
Divorce can be a difficult time. Getting in touch with family and friends, as well as nearby support services, are positive ways to seek a helping hand.
There are many online government resources, as well as legal aid services and counsellors who can provide assistance.
Your financial adviser may also be able to help by providing timely advice on how to make financial decisions and put in to place a long term financial plan which can assist you in getting back on track.