Starting over after divorce or relationship breakdown
Updated: Oct 13
Recently we spoke about how to navigate a relationship breakdown, but what happens once the settlement is finally complete and you are faced with the prospect of starting over on your own? While it may be a relief and a welcome change on the one hand, there is no doubt that it can also feel stressful and overwhelming.
Not only does your emotional health take a hit, so too does your financial health. For starters you may now be going from having two incomes with which to cover your bills, down to one. If you are a parent, the pressure is even greater as you juggle work and parenting. And let’s not forget the long term impacts, with research by AMP finding that divorced women had 70 per cent less super than married women.
But it doesn’t have to be all doom and gloom. While money can be a source of financial stress, it is also a tool that you can use to put yourself in a stronger position. With that in mind, here are a few steps you can use as a guide as to where to focus your attention first.
Step 1: Understand your financial needs
It will come as no surprise that the starting point is to understand your cashflow and your short and medium-term needs. Do you have enough money coming in to cover the essentials? Are there any large expenses coming up that need to be planned for (such as replacing a car). If you identify a shortfall it is important to be proactive and reach out for help sooner rather than later – every problem has a solution and the sooner you find it the sooner you can focus on the more fun things in life!
Step 2: Prepare an emergency backup plan
When you are single, the buck stops with you, which means you need to have an emergency back up plan. It all starts with having enough cash saved up to cover any unexpected and urgent bills. If you have received a lump sum in the divorce settlement that you plan to invest or use for a house deposit, make sure that you leave some of this money aside for emergencies. In addition to having emergency savings, this is a good time to review your insurances such as life insurances (for example income protection, trauma and disability cover) as well as insurance for your assets (such as car, home and contents, etc).
Step 3: Watch out for emotional overspending (or investing!)
There is no escaping the fact that whether you are a man or a woman, your financial decisions are controlled by your emotions. Never does that come more to the fore than when you are going through something as emotionally draining as a divorce. For starters, there is the temptation to treat yourself after everything you went through (rightly so!). If you are a parent you may find lingering feelings of guilt that lead you to spend more on your kids than you would otherwise. And let’s not forget that sinking feeling of falling behind or needing to play catch up as quickly as possible. All of these emotions are a perfectly natural response to a relationship breakdown, but left unchecked they can lead us to extremes such as either taking no action at all (if we feel helpless) or taking on more investment risk than we would otherwise feel comfortable with.
When it comes to spending, while there is certainly nothing wrong with wanting to treat yourself (or the kids), it is important to be careful that this doesn’t become a habit that leads you into debt or removes your ability to set money aside for the future. Before making any financial decision or investment, make sure that you ask yourself ‘what purpose is this serving?’ and check that it really is the right way to achieve your goal.
Step 4: Revisit your long term plans
Once your immediate needs have been taken care of, it is time to set your sights on the future. A few strategies at your disposal to assist you with growing your wealth can be:
Reviewing your borrowing capacity
This is particularly important if you wish to purchase your next home or an investment property. While it may feel like an impossible task on a single income, try not to get too disheartened and dismiss your goals too quickly. Speaking with a good mortgage broker well before you are ready to buy can help yo to know your options and identify available strategies to achieve your goals.
Investing as tax effectively as possible
When it comes to tax, you don’t know what you don’t know. Always speak with your accountant and financial adviser before buying or selling any investments, as they can help you to be strategic and maximise any tax concessions you are entitled to. Remember, the less unnecessary tax you pay, the more money you can direct towards your goals without having to work overtime to get there.
Taking care of your super
The sooner you check in on your super and your retirement numbers, the easier it will be to bridge any shortfalls because of the power of compounding. The longer your money has to grow the less you need to invest in order to achieve the same result. Even simple tweaks like making sure you are not overpaying in admin and insurance fees and that your super is adequately invested can make a significant difference to your retirement outcomes. If time is not on your side, fear not as there are still strategies available to help you boost your balance and maximise your retirement income (without needing to rely on winning the Lotto or taking on risky investments!).
Going through a separation can take a significant toll on your finances, both short and long term. But that doesn’t mean that you are out of options! By taking a proactive approach to your money and seeking professional financial advice you can use money as a tool to rebuild your life and your financial self-confidence.
You do not have to do it alone, contact Serendipity Wealth Advisors for a confidential financial planning discussion. We are available for appointments in our Newcastle office or Australia wide via video conferencing.
What you need to know
This information is provided by Serendipity Wealth Advisors. The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information.