Avoiding Costly Mistakes - When 'She'll Be Right' Isn't the Answer
Article by Jane Ridder
The need for financial advice is rarely more apparent than when going through a property settlement. After all, you'll rarely be better off financially after splitting the assets between two households. So, why don't more people seek financial advice at such a critical time? I think this comes down to the good old Australianism: 'She'll be right'!
We all know that as Australians we tend to be a laid back bunch of people. Sometimes this often endearing quality can work against us. We need to pay more attention to our financial planning rather than assuming this will all turn out OK. You may think that seeking financial advice is just another burden but if you don't get the right advice, at the right time then you risk making costly mistakes.
When should you seek advice? You should always seek advice before the property settlement agreement. A qualified financial adviser will be able to assess whether you are making the right decisions in respect to the best split of assets for your particular needs and will give you an idea of what you can expect in the future if you proceed. An adviser who specialises in separation and divorce will also be able to quickly assess whether you need in depth advice at this stage of the process. The other key point is once the agreement is in place and the settlement is proceeding, it is now time to finalise your future plans and take action to ensure your long term financial recovery.
Why do you need advice? You are just about to have your asset pool split in two, you may be setting up a new house, you may have childcare costs, support payments, education expenses, your Centrelink position is changing, your life insurance needs are changing, your budget is in a state of flux... need I go on? Almost every facet of your financial life may have been impacted in some way and something is bound to go wrong without the right plan in place to sort this all out. In some instances this is making the most of the assets you have to ensure they will last the rest of your life, in other cases it's working out how best to get back to growing your assets so that you'll have enough when you retire.
What can go wrong? There are any number of issues that could lead to significant financial hardship, including:
- Losing Centrelink benefits. If you are currently relying on benefits to live and/or are counting on receiving these after the settlement then you better be sure you will be entitled to these. You don't want the nasty shock of going to Centrelink and finding out your benefits have been cut off!
- Capital Gains Tax. If you aren't careful you could be up for tens of thousands of dollars in tax by selling down assets or transferring ownership of these. There are a number of exemptions that apply to property settlements so make sure you take advantage of these. This tax can often be easily avoided or significantly reduced by structuring the property settlement appropriately.
- Missing out on Superannuation. Did you know that superannuation can generate a tax free income in retirement (after age 60)? Like it or not, superannuation is generally the most tax effective method of saving for retirement. So don't dismiss it just because you don't understand it or because you may not be eligible to access it right away. Missing out on superannuation now may put a big hole in your retirement plan down the track.
- Poor investment decisions. After the property settlement you may find that you are now the proud owner of investments that your spouse arranged. You may have limited understanding of these and what to do with them. Do not let apathy take over at this stage! Getting the right advice will help you to better understand your new position, which assets you should retain and which you should change.
- Losing Life Insurance. It's not uncommon for a spouse to own a life insurance policy on your life. This means that they are entitled to the money if you die. If you need or want this cover, you may be able to negotiate to change the ownership as part of the agreement. Otherwise, you may need to apply for new cover or you won't be covered. You don't want to be in a position where your ex-spouse is literally waiting for you to die so that they can collect the life insurance whilst your preferred beneficiaries miss out.
Seeking financial advice before settlement will empower you to make informed decisions about your future. Don't leave it to chance or you may come to regret it.
Jane Ridder (B.Bus (Fin Plan)) is a Financial Adviser specialising in helping clients through separation/divorce.
Jane Ridder is an Authorised Representative (No. 294778) of Infocus Securities Australia Pty Ltd.
Prime Directive Pty Ltd is a Corporate Authorised Representative (No. 341753) of Infocus Securities Australia Pty Ltd ABN 47 097 797 049 AFSL No. 236523 trading as Infocus Money Management
The information in this article has been prepared without taking into account any individual's objectives, financial situation or needs. As such, you should consider the appropriateness of the advice and information contained in this article in the light of your own objectives, financial situation or needs and you should seek your own personal advice which has been tailored to your own individual circumstances from a financial planning expert before acting on the advice or information.
If the advice relates to the acquisition or possible acquisition, cancellation, non reinstatement or switching of a particular financial product or financial fund, you should also obtain a copy of and consider the Product Disclosure Statement (PDS) for that product.