Our guide to separating finances before divorce or separation

Given that the average divorcing couple is in their forties and has been married for 12 years, breaking up is rarely straightforward or simple. When you factor in kids, pets, property, debt, bills, savings and investments, the reality is that financial separation is often messy and can take decades to recover from. Separating finances before divorce can be daunting but with a proper understanding of your financial position, the impact of divorce can be reduced so you’re quickly back on your feet and become more confident about how to deal with finances during separation.

Adelaide mum Katie (name changed for privacy) separated from her husband three years ago. As well as uncoupling their lives and agreeing on custody arrangements for their 18-month-old son, Katie and her husband faced the daunting task of financial separation.

Their joint finances included a rent agreement, bank accounts, credit card, investment property loan, and mobile phones on the same contract. “I had my own bank account,” says Katie, “but there was barely any money in it. My son was little and I was still only working a few hours a week. I felt like everything was falling apart and I had no control over anything, except the decision to leave.”

When it comes to separating finances before divorce, Jess Neville knows a thing or two. Jess is a MyBudget Client Success Coach who specialises in helping clients who are going through separation. She understands how Katie was feeling. In an ideal world, Jess says that separating couples would earn the same amount and split their finances equally. But divorce and finances are more complicated than that and usually wrought with emotions. “It’s hard to think straight when you’re breaking up,” says Jess, “Let alone think clearly about your finances. My job is to make that easier. I help people untangle their finances, guide them on how to deal with finances during separation, and help them create a budget plan that takes the stress out of managing their money.”

First things first: A place to live

Jess says that one of the top priorities when it comes to divorce and finances is keeping a roof over your head. “The first thing to think about is housing, especially when children are involved,” says Jess. “The automatic response is to assume that the parent who has primary care of the kids will stay in the family home — and that’s good if they can afford it or their partner will keep up their share of the payments. The question is can you afford the rent or mortgage on your own? And can you afford to pay out your ex-partner?”

Jess says that the same principle applies to other expenses. When separating finances before divorce, people often try to take on bills and debts they can’t really afford on a single income. It might be because they don’t want to let go of, say, their car or they want to keep their kids in private schooling. That’s why budgeting is important (here’s how to make a budget) – when you’ve just gone from two incomes to one, it’s unlikely you’ll have the capacity to live the same lifestyle as before. Or perhaps you might. But until you have a detailed budget that shows the big picture, you can’t be certain.”

Jess says separating finances before divorce should be seen as one of the foundations of financial recovery. “It’s about having insight into what your new financial position looks like and how it’ll develop over the long term. Knowledge is power and having a budget in place can be the difference between struggling for years and getting back on your feet quickly,” she says.

Common money mistakes

As well as overcommitting to expenses, another common mistake around how to deal with finances during separation is to assume that their ex will keep paying the bills. Jess explains: “Say you have a joint car loan with your ex-partner and they have the car. Don’t assume they’re making your share of the payments. Until the loan is paid out or refinanced, both of you are responsible for 100-percent of the joint debt.”

In Katie’s case, the family car was in her husband’s name, so he kept it. “I had no money and no car and then my husband cancelled my phone and credit card. Luckily, I had my parents to fall back on and Centrelink was a big help.”

Jess is pleased to hear that Katie utilised Centrelink. Knowing how to deal with finances during separation is one thing, Centrelink is a whole other kettle of fish.

“A lot of newly single parents don’t go to Centrelink because they find it too confusing or stressful,” says Jess. “Dealing with Centrelink isn’t an easy process, but it’s there for people who need it. Even if you just get help for a little while, it’s worth the effort. It could be the key to keeping a roof over your head.”

Separating finances before divorce: You don’t have to do it on your own

Jess’ advice is to tackle the financial separation in stages. The first stage of separating finances before divorce involves putting your new living arrangements in place and talking with your ex-partner about who gets what. “Getting legal advice is always recommended when there are kids or joint debts or assets involved,” says Jess. “It’s also important to create a budget so you can live affordably while you wait for the settlement and so you know exactly what debts you can afford to take on.”

“Divorce and financial separation mean you may have to tighten your belt for a while, but the first stage doesn’t last forever,” counsels Jess. “After the negotiation and settlement, you move to stage two. You can revisit your budget and start putting financial goals in place. Maybe you want to buy a house one day or you might meet someone new and want to combine your finances into a joint budget. These are the elements that we can help you budget for.”

Professor Matthew Gray from the ANU Centre for Social Research and Methods agrees that financial recovery from separation or divorce can be sped up by properly planning for it. Speaking to the Sydney Morning Herald, he says, “Men tend to have the same disposable income after divorce — maybe even a little bit more — as their costs of providing for children can often be less, even after accounting for any child support payments.” On average, he observes that women take longer to recover financially because they take a bigger hit to their income. However, for both genders, Professor Gray says that those who are proactive in planning out their finances get back on their feet the quickest.

How MyBudget can help with separating finances before divorce

MyBudget’s caring, customised approach is unique in the financial services arena. “Our support when it comes to financial separation is fully personalised,” says Jess. “We start by creating a long-range budget that takes into account all of your income and expenses over the next 12 months. You end up with a detailed money plan that’s customised to your situation and shows exactly what is and isn’t affordable for you. Our initial budgeting service is free,” adds Jess, “so I encourage people to take advantage of it.”

For those who do end up joining, MyBudget provides the clarity and support to help people achieve their goals without having to worry about managing their money. Money coaches like Jess can also assist clients by paying bills on the client’s behalf, speak with creditors and propose new payment arrangements while their financial separation is being sorted out. Jess says, “When you have such a big change in life and so much going on it’s easy to forget things or feel overwhelmed. We’re able to pay your bills for you, monitor when your expenses are scheduled to come up, and budget for the future. You can relax and not have to worry about anything getting missed.”

Still not sure how to deal with finances during separation?

MyBudget can help. Book a free budgeting consultation with one of our caring money experts. We’ll help create a customised budget that relieves your stress and shows you how to take charge of your financial future. Your budget plan is yours to keep.

Request your free budget consultation today or call 1300 300 922.