Can We Talk About Divorce and Financial Planning?

The celebrity split of “Brangelina” has swamped news coverage, but hopefully after you get your fill of the sordid details (if that’s your thing) it is possible to reflect on the fact that sometimes marriages can break down. Although it’s a topic many of us would prefer to avoid, divorce is one of the “big three D’s” (along with death and disability), that can throw the best laid financial plans into turmoil.

Current statistics indicate that a third of all marriages end in divorce. With emotions swirling, the anxiety and uncertainty associated with divorce and separation makes it one of the biggest and most traumatic life transitions someone can go through.

Although potentially a touchy subject, advisers we spoke to both thought it was important to raise the possibility with their clients. Katherine Hayes, a risk specialist of Tiffen & Co Insurance Services told us she approaches the subject by getting her clients to look at it in terms of personal protection. “The biggest disrupters of financial plans are the ‘big three D’s’, Death, Disablement and Divorce”. While the first two can be mitigated with appropriate insurance cover, the financial implications of divorce will depend on the settlement that occurs at the time.

Mark Mitton of Mitton FP in Adelaide said settlements could be a long, drawn out and painful process and sometimes not dissimilar to the drawn out nature of contesting Estate Plans after a death. Mark said that the topic of divorce, while not always raised explicitly is often touched on. “We do mention it. When we’re talking about investing in the future and money, it will come up in the conversation”.  He added, “it becomes an even more important issue with people who have already been through a divorce”.

Both advisers mentioned that the financial settlement process resulting from a divorce can be particularly traumatic.  As Mark noted “as soon as one party engages a lawyer, then the other party will do the same and the size of the pie to be divided can become considerably less”. This notion is echoed by Tim Mackay in a piece he wrote for the FPA – “once lawyers are involved, costs will likely skyrocket”.

Katherine says in her experience, she tries to help people by preparing them for the “new financial normal”. “It’s a high stress time, people focus on their needs and wants and my role is in helping to manage their expectations as part of that process.”

Having prior awareness of the financial implications that come into play as a result of separation and divorce can help ease some of the stress involved should it someday happen. It should not be taboo when couples meet with their adviser to mention the possibility of partnership breakdown. For more information, you can check out the federal government’s money smart website which has some information on practical steps to take if you find yourself in this situation, or speak to a qualified, professional financial adviser.

Article by:

Katherine Hayes

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