The Next Chapter: Navigating Life and Finances After Separation
Separation from a loved one is one of life’s most difficult transitions, even more so if this came out of the blue. While this naturally can be a financially traumatic time, it is important not to overlook the fact that this is so much more – emotionally, physically and mentally draining. This is compounded even further when there are young children involved.
From the experiences we see all too regularly, it can often become a fight or flight response type situation too – fighting out of anger, fighting because of a loss or fighting to win back what you had prior. If you were in a strong financial position prior to the separation – owning your home and accumulating wealth for the future for example – your instinctive response is to “fight” to get yourself back in this position again. This may mean you are hellbent on buying your next home, building up your superannuation and so on. Building back up the life you used to have it could be said, just with less one person who used to be part of it.
The purpose of this article is not to tell you everything will be alright or that there is a one-size fits all solution to the problem. The purpose is to share some of our experiences as financial professionals with you that we feel may help point you in the right direction.
Firstly, let’s start with some common sense non-financial guidance. Step one – breathe. Separation is like any other grieving process so don’t fight it and pretend everything is okay. What you have just been through is likely a very traumatic event – particularly if the separation hasn’t been an overly amicable one. Take the time you need to process the situation, breathe and prepare yourself for the next step. Without doing this, your emotions will likely continue to remain elevated and as financial professionals, our experience tells us that decisions made in a heightened emotional state rarely lead to positive outcomes.
Secondly, think about your children. As adults, we know how difficult life can be when you are physically and emotionally drained. For the younger ones, they don’t have the ability to manage emotions as well so separation can be a very difficult process for them – even if everyone keeps telling them its okay and that they will be fine. A lot of focus needs to be given to this and no fixed timeline should be put in place. As finance professionals, we regularly refer to one of the most important points of security being a roof over our heads to make us feel safe. The first roof doesn’t have to be the final solution – it just needs to be somewhere safe where you and your children feel comfortable more than anything else.
Beyond this, one that is sometimes overlooked is to rebuild your support network. One of the most unfortunate elements of separation is that of joint friendship circles. Depending on the situation, this may mean a lot of the people you called friends disappear, being forced to choose one side of the separation. Having people in your corner that you can trust and lean on during this period is incredibly important. This naturally gives you a security blanket but also people who can help you out when times get tough – whether that be someone to help you get the kids from school every now and then who friends who can help you work through this difficult process. It is worth noting that this doesn’t have to be a large network. In many cases, a few trusted people can be more valuable than a large circle of acquaintances.
On the financial front, most people’s immediate reaction is to re-build and get back whatever has been lost. A new home or place to live is where a lot of energy is focused, something which is completely understandable of course. However, one of the most confronting elements can actually be understanding and dealing with your finances, particularly if you have not historically been the one managing the finances in the household. This is crucially important so leaning on someone financially savvy to assist can be very helpful.
This then leads into step one from a financial perspective – cash flow. This is now a new world so understanding what money is coming in and going out is crucial. One simple starting point is to simply note this down – what are the key expenses that go out every month, how much are these and when are they paid. Most households will have good and bad times of the month (Eg. Lots of bills due on the 1st of each month for example) so being aware of this and then being able to plan for them is a necessary starting point. Building up a bit of a cash buffer post knowing the ins and outs of your cash flow is then a logical next step when possible.
The second thing we try to get people to avoid is making rash, often driven by emotion, financial decisions. You would have tried to avoid doing this prior to your major change in circumstances so why start now, particularly when the impact of every decision is now so much greater. Taking your time and working out what decisions are realistic and what are not is crucial. The key one we see here is around the purchase of a new home. While being able to immediately buy a new home would be great, I would hedge a bet that there is no major damage done in delaying this decision by 6-12 months. Yes I acknowledge being out of the property market is not ideal but neither is rushing into a decision you later regret, particularly if it turns out you can’t afford it once the numbers are crunched. Staying with family or renting in an area you are comfortable with (close to your support network and schools ideally) is a great starting point. It is also worth noting that delays in financial settlements are very common – very rarely does everything go to plan here, particularly if one partner is retaining the family home and needing to refinance in order to be able to do this.
The third one to highlight is the eighth wonder of the world – compound interest. As the old saying goes, those who understand compound interest earn it, while those who don’t pay it. You are most likely not going to be in a position where you have a large surplus cash flow immediately but starting small and building up is key. Even if this is saving $50 per week into a savings account or salary sacrificing a little bit into superannuation each pay period, be assured this will build up over the long-term due to the effect of compounding. Using every bit of surplus cash flow wisely and increasing this up as things like pay rises come around will make a massive difference over the long-term.
While much of the focus after separation is understandably on cash flow, housing and rebuilding financial security, there are also several administrative matters that should not be overlooked – things that fall into the “life admin” category you could say. Firstly, your estate documents such as Wills and Powers of Attorney. Divorce voids these in most cases but separation does not. As such, reviewing these and updating where relevant is incredibly important. I haven’t seen many cases where a client is happy for their ex to be their financial power of attorney should something go wrong! Secondly, death benefit nominations for your superannuation. A lot of people have these set to go to their spouses so this may be something that needs to be updated as well. It is important to note that superannuation is not technically an estate asset so updating your Will doesn’t solve this problem – updating both is quite key.
In closing, separation is one of life’s most challenging transitions, whether it occurs amicably or otherwise. I hope this article has provided some useful insight into the financial considerations that can arise during this period and highlighted a few areas that deserve careful attention. Seeking guidance from a qualified financial adviser or other trusted professionals can help you make informed decisions and navigate the road ahead with greater confidence.
Importantly, a financial settlement is not the finish line – it’s the starting point for the next chapter. While the process can be emotionally and financially draining, it also presents an opportunity to rebuild, refocus and move forward with purpose.