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January is often a time for new beginnings – new year, new resolutions, and sometimes a totally new you.
As the song says, breaking up is hard to do, but when you’ve made the decision and are indeed on that path there are ways to make your future planning a little easier.
Firstly, as with most big life decisions, you need to ascertain your financial position. Your access to money is what gives you choices so before you make your next decisions you need to know the extent of your ability to make choices.
You need to know what you own – your assets – and what you owe – your debts.
You also need to know what your current obligations are: rent/mortgage, food, transport, utilities are and then compare that to your current income. Is there a gap – are you meeting your obligations and if not, how can you change that.
If you have excess income after meeting your obligations – you need to make a decision about where to put that excess.
Let’s assume here you’ve worked out the financial details of the split and you know what you’ve retained.
Where will you live
You may have landed on your feet and retained full possession of the joint property. It may be unencumbered, and you might also have a healthy super balance and a well-paid job. Even if this is the case – it’s still a good idea to review your plans.
Are you still able to live the life you had planned with your former partner? Are your retirement plans still on track? Do you need to cut any other spending to manage paying for things on your own?
It’s worth sitting down with a planner just to ensure you’ve thought of everything.
If you’ve retained the property – are you now listed on all the relevant bills – energy, rates, insurance and water? Are you able to afford them now and in the future.
How will you live
Have you been working? Can you survive on your own income – you may have extra expenses for rent/mortgage, or for child support, or for paying for utilities on one salary.
Can you find a better paying job, sell things you no longer need, can you move some of your finances around to better suit your new situation?
If your financial obligations increased, you need to figure a way to reduce other expenses or find a way to increase your income.
Getting your future back on track
Your super – did it get bigger or smaller through the separation? If it got bigger – that’s good, but it probably became bigger because it was smaller than it should have been in a partnership before. If it got smaller, then you probably have work to do in increasing it to get you back on the retirement track.
You should talk to your financial adviser about whether your retirement intentions remain the same. Perhaps with the change in circumstances you will need to work longer, or perhaps you will have to increase your contributions.
Your superannuation is an investment asset you should be checking on it regularly to make sure you remain on track to live the life you plan.
Keep an eye on your investments to ensure they are performing well and to your expectations and are invested according to your risk profile (which changes as you age and your responsibilities change).
Paperwork and changed details
Are your wills and estate planning in order? While a marriage will invalidate your current will, there is no automatic change if you divorce or separate. You might like to change both beneficiaries and executor. In any case, it’s a good opportunity to check the current situation.
Have you changed your superannuation beneficiary? This is separate from your will and other estate planning and needs to be lodged with the super fund directly.
Do you have insurance policies – and are they held by the right parties. You probably don’t want your insurances being paid out to your ex.
And finally, who holds your powers of attorney. This is a good time to check this also.
A good time to consider other life changes
Separation is a big change, but often there are other changes that come with it.
You might decide you want to work less, or you may need to work more. You might want a change of location – to another suburb, city or state.
When you work out what your financial position is, you may decide that your choices are limited – you may need to work more to live a single lifestyle, that is with or without kids.
Checking your superannuation and future retirement plans is important.
Also important is checking your insurance. You may need more income protection or trauma insurance and less life insurance. It’s always best to have a qualified planner check these details for you.
It may be a good idea to leave some of the big decisions like moving for around 12 months down the track. There are costs to buying and selling that you might not want to pay multiple times – like stamp duty and moving costs.
This is particularly important regarding property – you will get a better idea of what you can afford and what you value. What are you most able to compromise on? Are you working more than you want just to sustain a property.
It might be easier to stay in the family property if you have kids and they are settled at local schools, however, you need to consider what ownership means. Do you have a large mortgage? Has it taken all your savings and cash buffer? Do you need the type of property it is or is there potential to instead rent something smaller or cheaper, or indeed buy something cheaper?
Sometimes it’s one change that spurs on many. In a time where the change might seem insurmountable a financial adviser can help you put things in order and keep you focused on one thing at a time.
The Money & Life website is operated by the Financial Advice Association (FAAA). The views expressed in this article are those of the author and not those of the FAAA. The FAAA does not endorse or otherwise assume responsibility for any financial product advice which may be contained in the article. Nor does it endorse or assume responsibility for the information.
