Is it even possible to rebuild wealth after divorce?
We know that one in three Australian marriages end in divorce and that the average length of the marriage is 12 years. This often means divorce occurs in the middle of your prime, income-earning years. How can you rebuild wealth after divorce?
Research by AMP and NATSEM in 2016 showed that men and women take about five years to stabilise their finances after a divorce and that women suffer most financially in the first four years post-separation.
Women Need to Rebuild Wealth After Divorce
When a father separates from the mother of his children, according to new research, his available income increases by around one third. Women, in contrast, suffer severe financial penalties. Regardless of whether she has children, the average woman’s income falls by more than a fifth and remains low for many years.
The research was carried out by Professor Stephen Jenkins, a director of the Institute for Social and Economic Research and chair of the Council of the International Association for Research on Income and Wealth.
Jenkins’s research found that the incomes of “separating husbands” rise “immediately and continuously” in the years following a marital split. “The differences between the sexes are stark,” he said. “But this is not so much a gender thing as a parent thing. The key differences are not between men and women, but between fathers and mothers.”
Jenkins combined data from 14 different British Household Panel Surveys over 1991 to 2004 with the findings from five European surveys. Recalculating the results using the formula by which the government measures poverty, he established new per capita incomes. Jenkins found that the positive effect on men’s finances is so significant that divorce can even lift them out of poverty, while women are far more likely to be plunged into destitution. Separated women have a poverty rate of 27% – almost three times that of their former husbands.
Maintenance paid by former partners also has little impact, said Jenkins, as just 31% of separated mothers receive payment from the father of their children.
“There are only two factors that have an impact on women’s financial position, post relationship breakdown,” said Jenkins. “The percentage change in income is less if they have worked beforehand and continue working afterwards. The impact is also reduced if they start working after the relationship breakdown. There is also a potential positive impact if she remarries,” he added, “although the impact is a small one.”
Women may be disadvanted because they’ve spent time caring for children and thus out of the workforce; because they don’t fully understand the financial situation prior to divorce, and because they often continue to care for the children following divorce, which limits their earning potential.
Superannuation Key To Rebuilding Wealth After Divorce
It’s true that both divorced men and women have at least 60 per cent less superannuation than their married counterparts, research shows. Research released last month found that divorced parents nearing retirement have 25 per cent fewer assets than married parents, and that Australians are divorcing later in life. The mid-40s is now prime time for marriage splits, which creates extra problems because these are key wealth-accumulating years. A typical marriage breakup sees the wife keeping the house and the husband keeping the lion’s share of superannuation, but this could create problems later for women heading into retirement with no financial firepower behind them.
And time runs out when it comes to super – you only have a certain number of working years during which you can contribute to super.
What You Need To Know To Rebuild Wealth After Divorce
This is much easier said than done, but you need every ounce of energy you can muster to rebuild your financial life. The good news is that you are not powerless.
Inventory Your Financial Life
You may or may not understand how finances and investments work right now, but that doesn’t matter. To help you rebuild your wealth after divorce, you need to educate yourself.
At this moment, it’s time to account for where you are and that means putting together an inventory of your financial life; income, expenses, assets and liabilities. Create a spreadsheet or folder. Make a separate sheet for income, another for expenses, another for assets and the last sheet for liabilities.
On each sheet, make a line item entry with the type of account, amount, who owns the account, what the rate is and the contact information at each institution.
It’s time to educate yourself, and with knowledge comes power. So this is the first step in empowering you to rebuild wealth after divorce.
Balance Your Budget
Make it a priority to know how much you’re earning and how much you’re spending. You’ll probably find that you don’t have the same lifestyle as you did when you were married. After a split, it may take you time to re-adjust to your new income. But don’t make the problem worse by getting into debt because you are spending more than you earn.
If you don’t know what you spend on average right now, start keeping track. This is the most important piece of financial information you can have. With it, you’ll know if you need to cut back or get back into the workforce (if the expenses are higher than the income) or if your situation is stable.
Understand The Changes
Divorce changes many things, including your legal and financial situation. If you’ve got joint accounts and own property jointly, this will all need to be dissolved as part of the divorce. You’ll probably find yourself having to set up new bank accounts, new credit cards, and perhaps new debts. It sounds daunting, but it can also give you a new lease on life.
Check your superannuation. When you set it up, you probably nominated your spouse as the beneficiary, and you don’t want that anymore.
Overhaul your estate planning. Your divorce doesn’t revoke your will, so you’ll need to update this unless you want your ex-spouse to receive your estate when you die! Other considerations you may need to think about are who’ll help take care of your minor children if you die, and who’ll make decisions for you if you lose your mental capacity.
Pick Your Team
Choose trusted professionals to help you rebuild wealth after divorce. You can do a lot yourself, but sometimes it’s important to receive ojective, expert advice. This is especially true when it comes to complex matters, like tax, legal and investment decisions.
We can help guide you through the process of divorce and then help you rebuild wealth after divorce by getting your estate planning in order. We offer a free, 10-minute phone consultation – contact us today!