Breaking up is hard to do

Personal Financial Advice
Catherine Chivers

Catherine Chivers

Senior Manager - Strategic Advice, Perpetual Private
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The right advice can help you survive a relationship breakdown with your finances intact.

Relationship breakdowns are emotionally difficult and often financially damaging. A financial planner can help reduce the short-term stresses and improve long-term financial outcomes by working closely with a client’s legal and tax advisers.

There are big emotions at play when a relationship (marriage or de facto) breaks down. From a financial point of view, it’s also a very difficult time with questions about the division of assets in the short-term and crucial longer term decisions to make as well.

It’s tough for everyone, but at Perpetual, experience tells us that the right financial advice can ease both short and long-term stresses – especially when we work with a client’s legal and taxation advisers to manage some complex issues.

Tailoring advice to the unfolding situation

When a client comes to us who is going through (or about to experience) a relationship breakdown, we use a four step process to tailor our advice to their needs:

  1. Identifying the financial advice needs arising from the relationship breakdown
  2. ‘Triaging’ those advice priorities into short-term, medium-term and long-term
  3. Explaining to the client the advice areas where they may require specialist taxation and/or legal advice
  4. Working with tax and legal advisers as required

Let's look at each of these four areas in more detail.

Identifying relevant financial advice needs

When a relationship has broken down there are a whole range of personal factors that need to be considered:

  • the current nature of the relationship
  • whether there are children involved
  • whether the client is married or in a de facto relationship
  • whether a client has entered a new relationship.

We need to assess the implications – and interactions - of all these factors when we start the advice process. Sometimes that raises issues that surprise, which is why early and frequent conversations with an adviser can be important.

Triage - prioritising short, medium and long-term advice

Once we’ve talked with clients about the issues involved in the breakdown, we want to set out a plan of action that addresses their short, medium and long-term needs. A relationship breakdown often creates short-term cash flow needs – such as being able to meet immediate expenses (including legal fees).

With that background brought to the foreground we can start to help clients with some of the other priority areas.

  • Helping them develop a list of assets, resources, liabilities and other financial obligations of that are typically required as part of the family law process.
  • Appropriately briefing the lawyer engaged to review the client's existing estate planning position and ensuring all relevant documents are drafted or reviewed to reflect their new circumstances. While many clients know that a new will and power of attorney will be required, any self-managed superannuation fund trust deeds will also require review, as will any existing shareholder agreements and company constitutions.
  • Conducting a full strategic review of the client's existing and likely future financial position. 
  • Effecting any superannuation split, including understanding the nature of the parties' superannuation interests and their underlying components as part of the settlement process and completing/lodging/follow-up of the paperwork required.

Short-term help is not enough

While managing these short-term issues sensitively and efficiently is very important for our clients, we place a lot of importance on quickly moving to address the longer term issues.

Medium-term planning will often centre around the settlement, particularly making provision for children. Longer term, we want to help clients think about their bigger, broader goals –financial independence and preparation for retirement. This triaging process is really helpful when it comes to balancing short-term and long-term goals and making sure one set of needs aren’t sacrificed for the other.

Advice areas requiring taxation and/or legal advice

Even in the normal course of events, investment, insurance and retirement planning can be complex. Structuring a financial settlement, dividing matrimonial property, and tax-effectively meeting child maintenance and/or spousal support obligations is even more complex.

That’s why we seek to offer clients recommendations on where to get expert tax and legal advice – or work carefully with their existing advisers to manage these issues. This is especially important in certain areas:

  • Where matrimonial assets are owned through private companies and trusts, including self-managed super funds
  • Ensuring that any child maintenance trust is appropriately established in order to deliver the appropriate taxation benefits and meet all family law requirements.
  • Managing any capital gains tax consequences of satisfying a family law obligation
  • Managing any stamp duty consequences of satisfying a family law obligation.

It’s about planning - and people

As with so many aspects of financial planning, helping a client manage the complexities of a relationship breakdown is not just about financial skill. It’s about being able to elicit and clarify a client’s real needs and being able to work with other advisers to meet those needs.

Ideally, the end result is that the client can move on from the relationship more easily and have a plan to achieve the longer term financial security they need

Catherine Chivers is the Manager — Strategic Advice at Perpetual Private.

This analysis has been prepared by Perpetual Trustee Company Limited (PTCo), ABN 42 000 001 007, AFSL 236643. It is general information and is not intended to provide you with financial advice. The views expressed in the article are the opinions of the author at the time of writing and do not constitute a recommendation to act. Any information referenced in the article is believed to be accurate at the time of compilation and is provided by Perpetual in good faith. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information.