The woes of celebrity couples facing a relationship breakdown may be a rich source of news headlines, but for many Australians the process of dividing their belongings in a property settlement is a harsh reality of separation and divorce. While most people, quite rightly, work with a solicitor to formulate a property settlement there are good reasons to speak with a financial adviser as well.
A carefully crafted property settlement can shape your future financial wellbeing including your ability to provide for children of the relationship. Your lawyer is a valuable source of advice on what you are entitled to in your settlement. However a good financial adviser can add further value, using sophisticated modelling techniques that show the possible long term outcomes of a range of different settlement options.
This is important because once a property settlement is finalised you have limited ability to turn back the clock. So it pays to get it right.
The problem is that emotions are often running high following a separation, and under these circumstances we don’t always make rational decisions. Like celebrity gossip, there’s no shortage of stories about ordinary couples who spend thousands of dollars in legal fees arguing over who gets to keep grandma’s sideboard or the family pooch.
Even in less dramatic circumstances, what may seem like a good choice today could work against you in years to come.
By way of example, let’s say a hypothetical couple has only two assets to divide in a property settlement – a $650,000 family home and a portfolio of blue chip Australian shares also valued at $650,000. On the face of it, both assets are of equal value. But scratch the surface and it becomes clear that there are major differences.
The home may come with a range of costs like mortgage repayments, insurance and council rates as well as repairs and maintenance. The shares on the other hand are likely to be a source of regular, tax-friendly dividends.
A major crunch can come further down the track when either party goes to sell the asset. The shares can attract capital gains tax, while the family home is entirely tax free.
This simple example illustrates the way various assets can come with pros and cons that may not always be immediately obvious. Superannuation and the way it may be treated in a marriage breakup, and the financial implications for both parties down the track, fits very much into this category.
Speaking with a financial adviser will alert you to these issues, and most advisers will work in tandem with your family lawyer to provide holistic advice. This lets you structure a settlement offering maximum long term benefit while still meeting your ex in a middle ground.
For more ideas on what to consider in a property settlement and how to best recover financially from separation and divorce, take a look at my new book Money, Marriage and Divorce.