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Separation Planning: Why It’s Crucial to Seek Financial Advice During Divorce or Separation
Going through a relationship separation or divorce is an emotional and overwhelming experience, and it’s easy to feel like you can’t deal with anything else on top of that. However, one of the most vital steps you can take for your future is to meet with a financial adviser. Separation planning is crucial for securing your financial independence and creating a more stable financial future post-divorce. As a financial adviser, I’ve worked with many clients through their separations, helping them navigate the complexities of finances and legalities that can otherwise be overwhelming during such a difficult time.
The Importance of Early Financial Guidance
One of my clients, Sarah, came to see me after her separation, and her situation highlights just how essential early financial planning can be during a divorce or separation. Sarah’s story began like many others: a sudden, unexpected separation, followed by the realization that she had a lot of financial decisions to make in the aftermath.
At first, Sarah was hesitant. After hearing advice from so many professionals, she was ready to be done with consultations. But I strongly encouraged her to meet with me to discuss her situation, as there were several important steps to take right away to ensure her financial future.
Step 1: Revisiting Her Will and Superannuation
The very first thing I advised Sarah to do was to review her will. Sarah was adamant about not wanting to talk to another solicitor, but when I explained that if something were to happen to her today, her assets would automatically go to her ex-husband, she realized how crucial it was to update her will.
Additionally, her superannuation needed to be addressed. The binding nomination that was in place meant that any funds from her superannuation would go directly to her ex-husband, bypassing her will entirely. We needed to make sure her superannuation nominations were updated so her assets could be distributed as she intended.
Step 2: Power of Attorney and Medical Appointments
As Sarah was beginning to understand, there were many moving parts in her financial situation that needed attention. I suggested she consider appointing a power of attorney—someone who could manage her financial affairs if she were unable to do so herself. We also discussed the need for a medical power of attorney, in case she became incapacitated.
While these seemed like difficult conversations to have during such an emotional time, I emphasized that putting these provisions in place now would provide
peace of mind and protect her in case of unforeseen events.
Step 3: Ensuring the Wellbeing of Her Children
Sarah had three children, and while her ex-husband had agreed to continue being involved in their lives, there was no guarantee that would remain the case indefinitely. We discussed provisions for her children’s future wellbeing, including ensuring there were funds set aside in case of emergencies and ensuring they were financially secure in the event of any changes to their father’s involvement.
This conversation also extended to her family home. Sarah had retained the family home but would need to re-mortgage it in order to buy out her ex-husband’s share. While Sarah was financially successful in her own right, this move was a significant undertaking, and we worked together to create a new family budget that would work within her means for the next few years.
Step 4: The Superannuation Sacrifice
One of the most challenging parts of Sarah’s situation was that in order to retain the family home, she had agreed to give a portion of her superannuation to her ex-husband. This was an unfortunate and difficult compromise, and while I wished I had been involved in the earlier settlement discussions, it was too late for us to change that part of the agreement.
Moving forward, it was critical for Sarah to focus on her superannuation. Despite the setback, I urged her to continue contributing to her super to ensure she could retire comfortably in the future. Even though the immediate future would be tough, it was important that she didn’t neglect her long-term financial security.
Step 5: Reviewing Insurance Coverage
The last—and perhaps most difficult—step in our process was reviewing Sarah’s insurance coverage. With money being tight, Sarah had considered letting her risk insurance policies lapse, including her life insurance. She wanted to free up funds for her superannuation contributions, but I explained that now, more than ever, it was crucial to maintain adequate life and disability insurance.
I sourced policies that would work within her budget while still providing the necessary coverage. We made the decision to increase her life insurance and total and permanent disability insurance, both held within her superannuation fund. If something were to happen to Sarah, we made sure there would be enough to cover the mortgage and support her children until they were financially independent.
Conclusion: Moving Forward with Confidence
Our final meeting was incredibly rewarding. While Sarah’s financial situation had changed drastically, she was now equipped with a clear financial strategy moving forward. By reviewing her financial affairs, updating her will and superannuation, and ensuring she had the right insurance coverage, she felt much more prepared to face the future.
Although the coming years would be challenging as she adjusted to life on a single income, Sarah now had the peace of mind that she was taking the right steps toward securing her financial future. We discussed her financial goals, and I was confident that with the right focus, she could achieve them.
Separation planning is critical during a divorce, as it provides the necessary tools and strategies to ensure that you regain control of your finances. Whether it’s updating your will, revising your superannuation, or ensuring you have adequate insurance coverage, a financial adviser can help you navigate these tough decisions and give you the guidance you need for a fresh start. If you’re going through a separation or divorce, I strongly encourage you to seek out professional financial advice—it’s the first step toward securing your financial independence and building a brighter future.
Read more about separation and finances at familyrelationships.gov.au.
