FALLING IN LOVE and getting married are typical happenings toward the end of the first stage of financial life. However, more marriages are failing and divorce is a high possibility during the second phase of financial life – between the ages of 25 and 45 years old. This article discusses five areas of concern should divorce occur.
Divorce eventually comes down to money and money-related issues: the splitting of assets, how the couple’s outstanding debt will be settled, and planning an independent financial life going forward. Without due care and consideration of the financial issues, one of the parties could be financially disadvantaged.
Splitting assets: Divorce entails finding an agreeable settlement in splitting the assets of the marriage. The aim is to reach a fair settlement to which both parties will agree.
It is important to be able to identify a comprehensive list of assets to be divided. That entails being in the know about your spouse’s finances in order to avoid the problem of hidden assets or hidden income. Each partner is responsible for having a clear knowledge of the finances of the relationship. Not knowing can result in accepting an unfair settlement.
Cash: It pays to keep an eagle eye on the cash and not be distracted by the arguments and related emotional trauma. For example, when an offer of settlement for the divorce is made, consider the liquidity of the assets listed. That is: how quickly can the particular assets be reduced to cash.
One partner may appear to be getting much more value in monetary terms than the other, yet it is important to ensure that years later, that value can be sustained and expanded.
For example, the marital home may be the most valuable asset. However, the mortgage payment plus maintenance of this asset could easily force the partner who gets it as part of their package to sell it within a year or two. Meanwhile, the other partner may have gotten less in value but more liquid assets like the bank deposits, dividend producing stock, and interest- earning bonds.
Splitting debt: Where there are loans, hire purchase debt or credit card debt which was undertaken jointly, each partner in the marriage remains fully responsible for the entire debt until it is repaid. As soon as divorce is contemplated, it is therefore in each partner’s interest to close joint credit card accounts and agree how the debt will be settled. Obviously, joint bank accounts should also be closed; each partner needs to plan separate finances.
Beneficiary: It is in the interest of each party to review the beneficiary named on the insurance policies, on company health and pension schemes and even in their will. If there are children, specific provision may be made for them, protected by a trust.
Budget Review: Each partner needs to review their income and expenses in line with their new single life and the life they project going forward. This should include issues like possible remarriage, future children, and the adequacy of retirement funds.
Finally, it is important that the tax implication of every transaction be considered; this may include moving to separate tax filings thereafter.
• Louise Fairsave is a personal financial management advisor, providing practical counsel on money and estate matters. Her advice is general in nature; readers should seek personal counsel about their specific circumstances.