13 Aug The Financial Impact of Divorce – Andrew Mirams
Divorce can be one of the most stressful experiences in someone’s life. As well as its significant emotional impact, there is also likely to be a financial impact of divorce.
It’s during times like these that it’s important to have the right information on how to proceed and the right people to help you understand your financial rights and responsibilities as well as any long-term financial implications of divorce.
So this guide has been created to take you through the financial impacts of divorce to hopefully help reduce any undue stress during the process.
The impact of divorce on legal fees
During divorce proceedings, there will be a requirement for legal assistance and the costs of this can vary significantly.
The reason why costs can fluctuate is mainly down to how amicable the dissolution of the marriage is.
If you and your spouse have committed to an amicable, quick and easy separation and divorce this will likely significantly reduce the legal and other costs.
However, if there is animosity or a complex untangling of property and assets, then the legal fees are likely to be much higher.
It’s important to remember, however, that legal costs are a short-term financial impact of divorce and generally don’t have a long-term effect after the divorce is finalised.
Depending on which type of legal professional you use, costs can start from about $330 an hour. The more senior the lawyer, the higher the hourly rate. Likewise, the more complex your needs, the higher the costs will ultimately be.
en a father separates from the mother of his children, his available income increases by around one third. Women, in contrast, suffer severe financial penalties. Regardless of whether she has children, the average woman’s income falls by more than a fifth and remains low for many years.
There is no doubt that divorce is financially stressful. US researchers estimate divorcing individuals would need more than a 30 per cent increase in income, on average, to maintain the same standard of living they had prior to their divorce.
The researchers found that about one in five women fall into poverty as a result of divorce. Three out of four divorced mothers don’t receive full payment of child support. Research also suggests that women usually don’t recover fully from the financial consequences of divorce until they remarry.
Most men experience a loss in their standard of living in the years after a divorce, as well as a loss generally of about 10 to 40 per cent, depending on the circumstances.
Divorce’s impact on your children
As well as the emotional impact of divorce of children there are also financial effects that need to be considered.
Australian research shows that the financial impacts of divorce is more prevalent for people with children than without.
The research found that some women were able to recover their income after six years through re-partnering, increased labour force participation, and an increased proportion of income coming from government benefits.
However, this was not the case for divorced women with dependent children. In fact, divorced women with dependent children found it difficult to recover their income post-divorce.
Researchers said that sole mothers with dependent children experienced difficulties combining paid work and family responsibilities with less support.
Australian Bureau of Statistics research found that in 2003 just over one million children aged 0 to17 years lived with one parent and also had a natural parent living elsewhere. This represented 22 per cent of children in this age group, a similar proportion to that in 1997.
In cases of separation or divorce of their parents, most children lived in one parent families for some period of time. They are much more likely to live with their mother than their father and right from birth some children live with their mother only. In 2003, 87 per cent of children with one non-resident parent had a father living elsewhere.
The ABS research found that almost half (47 per cent) of families where children had a parent living elsewhere had government pensions, benefits or allowances as their main source of income, compared with 28 per cent of families with a non-resident parent and nine per cent of families in neither of these categories.
The impact of Divorce on your property and assets
Another financial impact of divorce is the splitting of property and assets.
Unless the two parties can agree to the division of their assets amicably, this is where legal involvement is often required.
It’s important to understand that the division of property and assets may not necessarily be equal. This is because there are a number of factors, not just having steady income from a job, which the courts take into account as being financial beneficial to a marriage.
According to the Family Court of Australia, there is no formula used to divide your property. The decision is made after all the evidence is heard and the judicial officer decides what is just and equitable based on the unique facts of your case.
The Family Law Act 1975 sets out the general principles the court considers when deciding financial disputes after the breakdown of a marriage. The general principles are the same, regardless of whether the parties were in a marriage or a de facto relationship, and are based on:
- Working out what you’ve got and what you owe, that is your assets and debts and what they are worth.
- Looking at the direct financial contributions by each party to the marriage or de facto relationship such as wage and salary earnings.
- Looking at indirect financial contributions by each party such as gifts and inheritances from families.
- Looking at the non-financial contributions to the marriage or de facto relationship such as caring for children and homemaking, and
- Future requirements – a court will take into account things like age, health, financial resources, care of children and ability to earn.
The impact of Divorce on you super account
According to research by Suncorp, superannuation is often an after-thought in the grand scheme of the financial impacts of divorce.
The research found that only 17 per cent of people even considered superannuation during divorce proceedings.
The result is a surprising given, after the family home, super nest eggs are usually the second more valuable asset in a marriage.
It seems that many divorcees fail to realise that superannuation needs to be treated as a type of asset, which can be included and divided in the property settlement.
The research also found that more than 40 per cent of baby boomer women don’t think they have enough super and this may be due to a previous marriage breakdown. It appears that women in particular are not considering super as part of their divorce settlement, even though they are legally entitled to up to 50 per cent of their partner’s super.
In Australia, the median age of divorce for men is 45, for women it’s 42 and almost half of all divorces involve children. Superannuation balances between the genders can vary widely for this age group given child-rearing is still likely to be taking place. The average balance of a man in this age group is often twice as much as a woman.
According to AustralianSuper, when coming to an agreement about super, some possible approaches may include:
- One partner may get part of their settlement in the form of their ex-partner’s super.
- One partner may receive more super now and less of the other assets like the family home.
- Where one partner has super and the other has little or none, the super may be split 50/50 along with the other assets.
A lawyer or mediator can advise you on the options for splitting super.
It’s also important to remember that your partner has the right to request information about your super from your super fund, and when an agreement is made to split your super, your partner will be asked where their part of your super should be paid.
As this article has outlined, there are a number of financial impacts of divorce, which can have an effect on your long-term financial position. Having a professional team on your side could make all the difference to the outcome for you, especially during those times when you need a steady hand on your side.
During a relationship breakdown, it’s important to have all of the information and support you need to help you make informed choices. In this article, we’ve outlined some of the financial factors involved in divorce including legal costs; the financial impact of divorce on you as well as your children; the division of property and assets; and the importance of considering superannuation in the equation given its position as a significant asset.
*The information provided in this article is general in nature and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information with regard to your objectives, financial situation and needs.