This is a topic that we don't really like to talk about, but it is happening all around us. Divorce - or as we often refer to it 'Wealth Division'.
There are enough emotions and stress associated with the process of Divorce, without having to start dealing with the financial aspects. I read this excellent column in the Sunday Star Times today by Martin Hawes. Frankly, there is not much to add to it, so I have given you the information and the link here. Martin Hawes gives you excellent advice and food for thought here.
Divorce a major blip on financial radar
OPINION: Divorce is a time when finances change - for the worse. There is often great bitterness leading up to divorce - and then a battle royale as the house, money, business or farm are fought over.
One of the partners (and sometimes both) will feel that they did not get their fair share or in some way they have been shortchanged.
When the separation process ends (sometimes this takes years) there are children to care for, emotional wounds to salve and a strange, new life to live.
The newly divorced take stock, and what they find is that their household wealth is halved, income is frequently lower and expenditure is usually higher - and that is before they start to look at the lawyers' bills that have been mounting up.
Divorce is truly the worst of all financial worlds.
Some people recover from this much better than others. This may be because one partner had been preparing for divorce or it may be because some people have a better support network than others.
Then there are plenty of people who during the relationship have had little or nothing to do with the management of the family's finances. On separation, they are paralysed by the prospect of finding a house, mortgaging, setting up and running bank accounts, looking for work and so on.
Whatever the reason, some are more resilient than others. Divorce is never going to be good, but there are those who can look back in a decade and see it as a financial blip, while there are others who look back and see it as the start of their financial destruction.
I think that there are three main things that you need to do to recover financially from divorce: first, take your time. Any major life event and financial change means planning - especially when there is a lump sum of money involved.
This planning should be done as slowly as possible, and I would suggest that any money that you have from the settlement should be put in the bank and left there for at least six months while you think through your options.
Whatever assets you have will be the financial base for the rest of your life -they need to be held carefully and not frittered away. You will have to take control of your spending: monitor what you have to make sure you are not eating into your precious capital.
No matter how bad you feel about your divorce, this is not a time to try to cheer yourself up by buying a little red sports car or taking the kids on a ski trip to California.
Second, address the housing issue. Housing is likely to be your biggest cost and it can either put you ahead financially or become a deadweight and drag on your money for years.
If you are buying a house, it is important not to put too much of your capital into the purchase: remember that with your wealth halved, your house is unlikely to be as good as the one that you had while there were two of you.
Too much into housing will either mean a really big mortgage or, if you are well off enough not to have a mortgage, you may have so much in the house that you have nothing left to invest. Too much house, whether mortgaged or not, cramps other lifestyle options.
At the same time, resist the temptation to run away to live in Cricklewood (or the likes): housing may be cheaper there but job prospects and support networks may be very thin on the ground. You are better to rent in a main centre and have a good job than live and work with no career prospects in a small town.
Third, if there is anything left after the purchase of a house, it needs to be invested well. Initially it will do no harm in the bank while you think, but eventually you will need to invest it properly for the long term.
There is no rush to do this: you need a good, coherent investment plan that matches the way that you plan to live.
Whatever you might do with any investment cash, remember that the consequences will be felt for the rest of your life.
You may or may not be better off emotionally after divorce, but few people are better off financially. This is a time to move slowly while you think, consider all the options and plan for a new life.
Martin Hawes is an authorised financial adviser and a disclosure statement is available on request and free of charge, or can be found at martinhawes.com. This article is of a general nature and is not personalised financial advice.
- © Fairfax NZ News
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