How to help your clients rebuild wealth after separation (for family lawyers)

Divorce is one of the most difficult things anyone can go through. No two divorces are the same, but they are often painful – both emotionally and financially – and are a steep learning curve for anyone going through one.

Someone experiencing divorce will suddenly find themselves responsible for their own financial wellbeing at the same time they are going through a major life transition and, if there are children involved, working through new care arrangements. For many people, this can be overwhelming.

What is financial wellness?

Financial wellness can seem like a pipe dream for many people who’ve just been through a divorce. But it isn’t unattainable.

The underlying basis of financial wellness is financial security. This relates to a person’s ability to manage their finances to achieve their short-term needs while at the same time they save for mid and long-term financial goals.

Financial stress can occur at any time, however, people are more susceptible during a major transition period such as divorce. This can be exacerbated when one party did not play a large role in managing the finances.

Data from the Australian Institute of Family Studies shows that women are more likely to initiate divorce, but are also more likely to suffer financially because of it. It also shows that repartnering after divorce is often more financially beneficial for women, but not as beneficial for men.

Even without divorce, there are some sobering financial statistics around Australians’ financial capabilities. One in five of us are unable to access $2,000 in an emergency. And close to one in five are struggling with credit card debts. While around 25% have less than $1,000 in savings.

The ultimate goal of financial wellness education is to change behaviour to address short term needs and plan for the future.

Overcoming financial abuse

Some people finding their feet after divorce are also overcoming financial abuse at the hands of their former partner. Financial abuse is a systematic behaviour where one person tries to control another person’s access to money.

Financial abuse is common in romantic relationships. It may have been present for the entire relationship or it may have only surfaced after separation as a result of property settlement and child support requirements. Like other types of family violence, financial abuse is highly gendered and the majority of those it is perpetrated against are women.

After separation financial abuse can include refusal to pay spousal support or child support, money being taken from bank accounts or access to joint accounts taken away.

Many who leave a relationship where financial abuse is present can end up living in insecure or unsafe housing, refuges, or even experience homelessness.

Assembling the right team to help your client rebuild their wealth

Your client may have different needs and may need to be referred to a range of different services to get back on track financially.

When creating a financial wellness solution for them, you may need to take into account whether they need financial education and skill building, need help with daily money management, need assistance to reach the goal of owning their own home, ascertain their estate planning, insurance and superannuation needs and also look at investments.

It’s essential that they establish a team of experts, post-separation, they can trust to help them with these tasks. This includes lenders, a legal team, property advisor, accountant, financial planner and emotional support networks such as family and friends, counsellors and psychologists.

Key outcomes for anyone who has separated or divorced are to pay down debts, build an emergency fund, achieve savings goals and ultimately build a nest egg to ensure sufficient money to retire on. With help from the right professionals, your client needs to understand their net wealth and what they can do to increase it. Building a portfolio of income-producing assets can help people to become financially free.

Wills, life insurance policies and nominated beneficiaries of superannuation funds and any power of attorney provisions need to be updated to reflect the change in circumstances.

A thorough review of all insurance needs should be undertaken, including income protection, total and permanent disability, life insurance, home and contents and health insurance.

Superannuation is also crucial, and yet many people are unaware of their own super balance. For long-term benefits it’s important for superannuation to be consolidated, to compare the fund’s performance, select the appropriate growth option appropriate to life stage and risk profile, looking at whether salary sacrificing to super is appropriate and checking insurance and how it compares against retail insurance.

Super can also be used in some circumstances to purchase investment property, through a self-managed super fund.

How you as a legal professional can help

1. Refer clients to the right professionals so they get the help they need.
2. Offer clients information and resources to help them (see below)
3. Run an education event with DPN.

It takes a series of actions to become financially independent over time. The key to success is formulating the right team for the client who can collaborate and provide ongoing support.

When you have a client who needs to re-establish themselves financially, refer them to a trusted professional. DPN can assist to determine borrowing capacity and lending to purchase a home.

DPN understands the intricacies of starting over after divorce and specialises in helping people invest in property to build wealth and increase financial independence. We also work with financial planners, accountants and legal professionals to ensure a holistic solution.

Resources for your clients

• Budget planner spreadsheet download
• Review your existing loans
• Keep on top of your spending habits with Track My Spend app
• How to help build wealth after separation