Financial planning for newly single women

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Beyond the emotional trauma of a spouse’s death or the breakdown of a relationship, the most enduring scars can be financial. It pays to know where you stand money-wise if worst comes to worst. Julianne Dowling reports.

During the years when we expect to be consolidating our lives and long-term goals, we are most exposed to some of life’s toughest challenges. For women over 30 who are married or have established lasting relationships, the death of a spouse, divorce, or hangover debt from a failed relationship all loom as critical events that can up-end lives and shatter previously held concepts of the future.

While you should not go through life expecting the worst, it will pay you – literally – to not only be prepared, but to be prepared to act. In financial terms alone, the cost of a partner’s death or a relationship breakdown can be devastating. According to a recent study¹, divorce to a woman means an income loss of $21,000 each year. The death of a partner, even if he is insured, can bring a messy and costly wrangle over money. And beyond settlement, the legacy of a broken relationship may be a spiral into debt.

Jennie* broke up with her wealthy husband in her mid thirties. After a fairly long and stable marriage, her comfortable existence as the stay-at-home mother in a multi-million dollar house complete with luxury car came to an end. She says that money has never been important. What hurt her, though, was her former spouse’s efforts to hide assets and to avoid making a meaningful contribution towards their daughter’s upkeep, despite his ability to do so. Remarkably, given the expensive nature of childcare, new recommendations to the Senate may result in reduced contributions through court orders for children aged less than 12 years.

Following separation, Jennie’s husband was made redundant from his senior executive role and registered for the single parent allowance. He also got the Family Tax Benefit Part A (an allowance designed to help with the cost of raising dependent children less than 21 years of age, and 21 to 25-year-olds who are in full-time study). Because he moved swiftly, this effectively blocked Jennie out of any equal rights to those concessions. Only one parent is eligible when there’s shared custody.

Jennie advises women contemplating separation or divorce to act quickly. Seek legal and financial advice immediately, do not hesitate to register for the allowance. “Women tend to hang back because they want to see if they can reconcile. They’re afraid that by making a move the break-up is final. But that hesitation may be to their detriment.”

Jennie also warns that the financial planner who acted for the family previously may choose to go with the spouse they’re closest to or the one with the most assets and cash. Be prepared to find a new adviser.

Indeed, who advises who in a marital break-up is always at issue when it comes to money. Technically, there’s no reason why a planner can’t advise both partners during a divorce but they risk being sued if they disclose anything that the other party has requested be kept confidential. However, once in court, the adviser can be required to reveal this information. It’s not a position any professional relishes.

Financial expert Marisa Broome says that while it may be an amicable separation initially, once money and assets are involved it often becomes nasty. “Despite the fact that they are his children too, many men need to get on with their own lives, which overtakes the need to support their responsibilities.

“Most people after a divorce are struggling financially, especially if younger kids are involved… but it’s equally as hard for women in their fifties and sixties who are looking forward to the future and a comfortable retirement and then the husband goes off with a much younger woman,” says Marisa. “These older women often get a more generous settlement because there’s an element of guilt attached to the split, unlike the younger ones where it’s about how much they won’t be getting if the husband can help it!”

Not all marriages end as a clash of wills over settlement and custody issues. Some, as mother of four Angela Greenwood discovered, involve worse financial situations with potential for serious repercussions on personal credit ratings. Till Debt Do Us Part (Trans-world Publishers 2005), co-authored by solicitor Catherine McKimm, details Angela’s odyssey to overcome the legacy of her first husband’s “sexually transmitted debts”.

A letter from Angela’s father-in-law, saying he would send money to the couple, alerted her to the fact that her then husband had lost everything after trading in the foreign exchange markets through a bank during a two-year period. In fact, he had drained $1 million out of their joint account.

Oddly, the bank had not kept her informed. Later, they tried to dodge seeing her and then denied it. Angela fought back with the help of country solicitor Catherine and finally settled out of court with the bank some six years later. Angela says she’s been amazed by the number of women coming forward with similar stories of being ripped off by their husbands.

All too often, the balance of power in a marriage is unequal and women are treated as chattels when it comes to finance, says Karen Milgrom, a community development officer. A report produced by her group, Coburg Brunswick Community Legal & Financial Counselling Centre, highlights stories of women in financially abusive relationships, where the woman is closely monitored on household spending and may be forced to live frugally even though the husband has money to spare.

“Everyone is so concerned about physical violence but haven’t turned their attention to this form of gender-based abuse. The bruises may stop but impoverished women and children are trapped in financial abuse for years and the hardship continues,” Karen says. The death of a partner can also heavily disadvantage a family, especially if the spouse dies intestate (without a will). Research shows that 50 per cent of families have no will.

Even when there is a will, super-annuation payments are not covered unless there is a document called Binding Death Nominations, which must be renewed every three years. In the case of a self-managed or DIY super fund, the partner should determine who’s to gain, otherwise the executor of the will steps in. If there is a binding nomination that is valid, it should go to the person nominated. If it is up to the trustee (who may be the family accountant or solicitor) to decide how the money will be distributed, the wife may have to wait a while before any payments are made. Often the trustee will write to every family member asking if there are any claims to be made beyond what is in the will.

Meanwhile, the wife must soldier on with loan repayments and maintain her credit rating. If the trustee takes a long time to act (a recent case reportedly took up to 10 months), you can appeal to the Superannuation Complaints Tribunal for emergency financial relief. Insurance helps; it should be there to cover debts and help maintain the family lifestyle, but if it is taken out automatically through a corporate superannuation fund, it may be inadequate. As a couple, review your level of cover regularly; as the super investment increases, so the insurance portion may fall back.

Pre-nups: for better or worse?
A pre-nuptial agreement is known as a binding financial agreement (BFA) that covers the division of assets and income of a couple upon separation. There may also be other general clauses pertaining to the death of one partner. A pre-nup must be drawn up by a solicitor.

John B. Gray, solicitor:
“Pre-nups are suitable when both parties have equal financial standing, equal maturity and equal bargaining power. But if you sign one, you’re giving up your legal rights under Family Law. You may also need a binding wills contract to ensure obligations under the BFA can be enforced after the death of either party. BFA drafting can cause division between the parties and raise an element of mistrust. Some people get so emotionally involved that they do not consider the long-term effects. If a well-off man protects his financial position his partner can be quite disadvantaged.”

Suzanne Baldry, director of Baldry Financial Group:
“Don’t wait for your second marriage, do it for your starter marriage if you’re bringing in disproportionate assets or inheritance. Nobody enters marriage thinking about divorce, but you must be savvy about your circumstances.”

Helpful links
www.idont.com.au
www.cclcnsw.org.au

¹ AMP/NATSEM study.
* Name changed on request.

Photography: Sam McAdam