Separation Planning: An adviser’s perspective
This article explains why it is vital to see a financial adviser during a relationship separation or divorce. It is written from the perspective of the financial adviser and details the important steps that need to be taken to gain financial independence and ensure a brighter financial future after separation.
After years of being happily married, Sarah and her husband decided to separate, and the story of her acrimonious divorce was certainly distressing.
It started with a chance meeting, where in passing, Sarah mentioned the divorce. She assured me she’d had enough of advisers for a while but I insisted we meet as quickly as possible.
The first necessary step was to look at her will. Sarah said she never wanted to speak to another solicitor again, but this quickly changed when I explained that if something happened to her today, all her assets would go to her ex-husband.
Her superannuation also needed to be updated. The binding nomination that was currently in place needed to be changed to stop the flow of money, which would otherwise bypass her will and go directly to her husband.
I suggested that Sarah think about putting in place a power of attorney so that someone could step in and handle her affairs if she could suddenly no longer do this herself as well as think about appointing a medical power of attorney.
Then came the matter of her three children. While her ex-husband insisted he’d continue in their lives, this could easily change in the future and so provision must be thought about and sought to ensure the wellbeing of her children.
Sarah had retained the family home but needed to re-mortgage it to buy out her ex-husband. As a successful professional in her own right, she could afford to do this but only just. A new family budget was needed, at least for the next few years.
So far, Sarah had been agreeable to my suggestions, but then I turned the conversation to two other key areas. To retain the family home, Sarah had agreed to give part of her superannuation to her ex-husband.
This was a disappointing outcome, and it was too late to mention that as her financial adviser, I should have been involved with these discussions about the settlement before she had agreed to it. But it was too late now to go back.
While the next few years would be tough living on one income, it was important that Sarah focused on her superannuation and did not let it lapse. I urged her to remember that in a few short years, she would be thinking of retirement.
She needed, more than ever, to ensure her superannuation was on track and would be sufficient to provide for her when she stopped working.
Our final conversation was the most difficult, but I thought, the most important. Sarah needed to do a stocktake of the insurances she held on her house, her car and her health, but most importantly, she needed to review her risk insurance.
No, she said. She had never understood risk insurance and particularly now when money was tight, she wanted to let these lapse. She thought she could boost her superannuation savings by stopping the life insurance within it.
I understood Sarah’s concerns, but explained now was when it was most important for her to keep, and probably increase her personal insurance.
We arranged a second meeting, and this gave me time to source the best policies that would provide Sarah with the peace of mind she needed while keeping within her already tight budget.
We agreed to increase her life insurance and total and permanent disability insurance, which were both held within superannuation. We decided if something happened to her, there should be enough money to re-pay the mortgage and support her children, at least until they turned 18.
While it all took time, Sarah left the second meeting happy. She was well prepared to face her new future, and I was pleased she could now take some well-deserved time to herself.
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