At the start of a divorce process, one or both parties often have a significant amount of financial confusion.
This could include being confused about:
- What their historical financial details were if they had little to do with managing the household finances during the marriage.
- What their current financial details are given they may be part way through having new arrangements in place such as moving into a different property, separate sets of expenses and bills, clarifying who is paying for what and how much, and many other changes that may be only part way through occurring.
- Where their finances may end up in time as a settlement evolves and is eventually then implemented.
We find most people going through a divorce are therefore dealing with financial confusion across a whole range of areas. In fact, we could write a very long list, but some examples would be:
- What assets make the most sense for them to retain as part of the settlement based on both lifestyle and financial considerations;
- How much they spend & where their money goes or will be going based on their changing situation;
- Where their super is, it’s balance, how it’s invested;
- What their financial and lifestyle goals now are or will be;
- How to ensure they will initially have financial security but then after that, be able to effectively grow their wealth;
- What insurances they have or should have;
- Where key documents or information are;
- All tax considerations of potential decisions;
- Not having an easy to understand ‘dashboard’ of all their key financial data in one report (we provide this)
- How to deal with (insert financial confusion problem name) in the most effective way…and the list can go on;
All this confusion means people can become stuck and stressed and unable to make decisions as it all becomes a jumbly mess of uncertainty.
This of course is not what we want for them and not what they want for themselves. Inevitably they do want to find a way through from financial confusion to financial clarity, so they can move forward with their lives in the most effective way.
Getting clarity and understanding of their current financial position is so powerful and liberating for someone going through or coming out of a divorce.
It lifts a weight off their shoulders and helps them feel less stressed and more in control.
It is also a vital factor in allowing them to set their future financial and lifestyle goals as they can more clearly see where they are now and where they would like to take things.
It is preferable that people obtain this financial clarity before agreeing to a settlement, because of course there are risks and issues of agreeing to an outcome that you don’t properly understand.
Of course for some people, even with a detailed set of information and numbers summarised in front of them, numbers may not be their ‘thing’ or the stress of the event they are going through may make it difficult for them to process it all and understand it clearly.
This is where expert financial advisory guidance can be important, and it is also important because often different assets or liabilities may have ‘hidden’ considerations about their true potential value after things such as income tax, capital gains tax, lifestyle needs, sentimental value and other factors are overlaid.
If financial clarity can be well achieved prior to settlement via the right advice, this will set the client up for a much happier and financially successful life after divorce.
Post settlement however, financial confusion may arise again as the person continues to navigate their significantly changing and evolving circumstances. This is therefore also an important time to ensure clarity over confusion to allow for sound decision making and optimum outcomes.
In summary, moving from financial confusion to financial clarity during and after divorce is a vital component of a happy and financially secure life after such a life altering event.
By The Family Law Financial Team