Getting a divorce has a big impact on household incomes and wealth in the short term and the long term, especially for women and their children. Divorce can also impact business and company assets and decision making.
So, it is vital to act early during a divorce to protect and rebuild income and wealth, get your retirement planning on track, and ensure a smooth transfer of financial affairs to the right people at the right time.
As well as looking after your own income and wealth you may want to make sure your family or loved ones are protected should something happen to you. There are many examples of people who are not remembered well by loved ones because they didn’t update their estate planning documents and their estate goes to other people such as former partners or new partners and their children. Protecting your children’s inheritance is very important, especially if one or both partners remarry or enter new defacto relationships.
5 things to consider to protect your wealth during divorce
1. Update your estate planning documents
Updating wills is an obvious but overlooked task to do after divorce. Not properly updating your will may mean the people or charities you want to benefit from your estate may not do so.
As divorces sometimes take time to finalise, you should update your will as soon as possible after separation. Otherwise, your ex-partner, rather than your intended beneficiaries are likely to get all your estate if something were to happen to you.
A will is only one tool of an effective estate plan. Other documents such as powers of attorney, powers of guardianship and advance care directives may need to change after a separation and divorce.
2. Don’t forget Superannuation beneficiary nominations after divorce
Superannuation is considered a marital asset or property to divide during a divorce settlement. But superannuation and insurances such as income protection, disability and death benefits do not necessarily form part of someone’s estate. Updating your Will does not change who gets your super if you die unless your estate is nominated. You must change your superannuation beneficiary nomination directly with your super fund.
If you have self-managed super fund (SMSF) you need to consider whether to jointly maintain those with an ex-partner. Both maintaining or splitting a SMSF can be complex, particularly if a divorce is not amicable. You need to look at personal tax and capital gains tax implications, compliance with regulations, and the valuation of the fund to protect your interests. Depending on the assets in your SMSF, selling them before they mature may undermine their long-term value.
3. Divorce and family trusts
Managing income and wealth impacts of divorce are more complicated when people have family trusts. If your partner, not you, is the trustee, and your children are the beneficiaries, it may be necessary to wind up that trust and start a new one or nominate new trustees. This is important if you think your ex-partner may not distribute the trust benefits as you would, does not have the same attitudes as you, or is moving into a new relationship.
4. Business or company assets, documents and decision making
Divorce has financial and operational implications for business partnerships and companies, particularly family businesses. Especially if one partner runs the business and the other does not or if you and your partner have different views on the future direction of the business. One partner may take over the business or it may be wound up or sold. Each option has different tax and wealth management implications.
Director and shareholder agreements may need to change too.
5. Post-divorce wealth management plans or financial plans
A divorce will change your income, assets and wealth. It often changes people’s financial, retirement and lifestyle goals. For businesses, particularly family businesses, it may change structure and strategy as well as operational and succession plans.
This makes divorce an important time to revisit your wealth management plans and business plans at the same time.
Getting the right financial and legal advice during divorce
Divorcing can be complex from a legal perspective and a financial one. That’s why it is important to get financial advice, ideally before you start divorce negotiations. When going through a divorce, every asset needs to be looked at as part of the bigger picture. You need to understand your current and prospective financial position before you start negotiating divorce settlements.
Different Australian states have different laws in relation to divorce and estate planning. Divorce impacts estate planning documents in different ways. For example, in NSW, divorce generally revokes the power of executor to your spouse and gifts, revokes powers of guardianship but not powers of attorney. You must revoke powers of attorney and then have new ones drawn up.
Lawyers may not understand all the financial and wealth implications of a divorce settlement.
Pitcher Partners wealth and business advisors understand divorce
Our wealth managers and advisors are experienced in estate planning and the wealth and financial impacts of divorce. They stay across the latest tax and Superannuation regulations and laws and how they relate to separation and divorce.
We work with your lawyer to gain the best possible legal and financial outcomes. For business or company owners or directors going through divorce, our wealth managers and business advisors and accountants work together for you.
Have a question about protecting wealth during divorce?
We love questions. If you want to know more about Pitcher Partners Newcastle and Hunter’s private business and family advisory services or private wealth management services please contact us.
Alison Fischer is a Private Client Adviser at Pitcher Partners Newcastle and Hunter. Alison gets satisfaction from helping clients to know they’re going to have the lifestyle they want in the next chapter of their life. She takes the time to ask and answer questions and goes the extra mile for her clients.
