Divorce…your financial guide

Hello, and welcome to The Australian's Money Puzzle podcast. I'm James Kirby. Welcome aboard everybody. I hope you've managed to have a few days off over these rolling holidays Easter and that day and everything else. And often at holiday times we do something slightly different, which we will today, but it is not in the nature of light entertainment. If you want to figure out how to start your classic car collection or how to build a wine collection,

I'm great, thanks having me back on.

Delighted to have you back on Okay, It's something that we can all pay enormous attention to building an investment portfolio and optimizing our cash and everything else, interplay between pensions and super whatever, which we talk about every day on this show. We don't talk about divorce, And the fact is that so many times people with their financial world cut in half or more than that. So can I ask you, and you deal in this area, and you've built a reputation in this area, what are the

We're looking at it during the divorce process, I'd say divorce is probably the hardest thing that most people will go through in their entire life. It's definitely the most expensive. To your point, it is an empire killer from that realm. But because it is lost and it's grief, people tend to lose some of the rationality in the decision making. They get stuck in sometimes a sense of justice. Sometimes they are concept of I get my day in court. Sometimes just someone gets in a third party gets in

They go, what's the set percentage?

How much do I get if they've lived with me for two years?

What's the rule? There are no rules.

There are no rules.

Did you say in the sense of there's no hard and fast and there's certain dates and court time frames that need to be met and must be separated for twelve months to get divorced and things like that. But in terms of financial split, a divorce has a divorce aspect of it, the legal aspect of set breaking that marriage. It's also got a financial or property settlement, and then if there's children, that's a child aspect, So the financial aspect is separate from the divorces.

So yeah, we always think of divorce as lawyers right on both sides, not financial advisors, and that is that the reality too.

Yeah, what I'm doing in this space is very new, and financial advisors historically when they've gotten involved, they get involved after settlement things are done.

I've now got this pool of money.

What do I do?

But when we look at the.

Really successful processes, two people who decide they're not going to continue in a relationship together before lawyers get involved, although you should always get them involved at some point before they're even involved, you can have discussions which can then turn into mediations, which can then turn into lawyer led mediations before a court tells you this is the outcome.

That would require. I expect this would for balance, This would require both parties having an advisor, and that would require whatever way you cut it, it would demand a certain amount of cash. Yeah.

Yes, So there's actually a form of separation called collaborative divorce where you have two lawyers, a communication specialist that's usually like a psychologist, and a financial neutral And it's a fantastic process for the right people, but when you have four professionals in the room, it can be increasingly expensive.

And is the financial persons supposed to carve it out fairly financially between the two people getting divorced.

In collaborative divorces.

Their job is to equalize understanding, to ensure that there's nothing missed that could be substantially detrimental in a separation. So it's like catching things before they go wrong. But they will never give advice to either party individually, even after the divorce. They'll always refer out from that position there.

Up the job.

I'll do the cooking, you do the washing.

I'll take care of the budgeting, and you can take care of managing the kids, time tables, whatever it might be, and we divide labor, and that can be proper madic.

It sounds to me what you're saying to our listeners, and to some extent we will just say that there. What you're saying is one person can manage the money if they want, but both parties should look after themselves by being across what's happening with their money. How much is our mortgage, how much do we actually make together? How many bank accounts do we have, how much is in them? Can you give us some examples when you say making sure everything's accounted for? Is? Are you talking

It?

Was that common? Can you give you some examples.

That can happen?

But I find that happens when things have started going wrong already. So if you've got a couple who'll across

Future, but they just don't get it. Because they don't get it.

I wonder my hunch is that the disastrous couple is the couple where neither actually pay attention to the money. Have you come across divorce proceedings where both parties were appalling in terms of that they just didn't pay any attention.

Or they a little bit of dangerous information. They did little things, but not everything. I thought you were taking care of that. No, I thought you were taking care of that. I was doing this thing, but I wasn't doing that thing. And yeah, it's often the case where the person who comes to me starts learning about how things are done.

Why did we even do it that way? That doesn't make.

Any sense at all, because granted their former partner was doing the best they could in the knowledge that they had, but they may not have known what to do. It may have just been thrustle them. You're good with money because you saved a bit more before we go together.

So you've got money because you're an accountant and whatever, I'm a portrait artist or whatever. Okay, So what about when you have people in that situation? The home, which in the Australian in every country matters, but in Australia is enhanced because it's also, on top of being a home, on top of having an elevated value VISI v. History and other countries, it also is a tax protected vehicle.

Maybe?

And so this sort of falls into one of the old urban legends around around separation that if I keep the house, I'll be better off. And there's plenty of reasons for that, not having to base damp duty when you purchase a new house, which is often missed in separation agreements. Yeah, finding housing. You keep the house. Now I've got to go and find somewhere to live, find somewhere to rent. I got it's been near the kids. I've got to do that, like all those kinds of things.

Take the house.

What happens in time, But I think what when we look at that The root of that problem is actually stems from not just what is the split or how do we divide assets now? But looking forward, And this is where I think financial advice is going to start playing a lot more of a role as people see the benefit of this is when if you look at i'll take fifty percent, or.

I'll keep the house. You keep this.

That's great until we realize that the person who's kept the house, who was a lower income earner, hasn't really been able to earn that much, can't afford to maintain the mortgage, can't afford the upkeep on the property, can't and then two years they sell it anyway, so that family asset is gone.

So this is where when we're looking.

At at a separation and trying to decide what's the best way to split assets.

And when I do this work.

I'm representing one party is looking at it and saying, yes, this might be where you want to be now, but where do you want to be in the medium longer term?

Can you even.

Afford to keep this place? And how does that fit into your broader lifestyle? The kids are sixteen and seventeen, you want to be in the area for schooling for the next two years than what or these sort of factors start coming in. But yeah, there is definitely a lot of advantages to the family home. There's also a lot of cultural connection to it. As you said, the great Australian dream of owning your own home or owning

So it's not necessarily the case then that the complexity is all upon the person who got other things other than the home.

Yeah, I'm finding more that keeping the home is not just not viable for either party, which is becoming increased in the common that so much of the wealth is in the home that the amount of debt the retainer would have to take on either they can't get it or they could can't maintain it, which just makes no sense. That seeming that's coming up a lot more than it used to.

Okay, can you give us two seconds on super and how it works, because it's still important now.

Yeah, with superinnuation, there's really the common question again, can we combine our super And there's sorts of things where people in a relationship you can't. There's a couple of rules around contribution splitting things like that, but there is a rule around splitting of super innovation in a separation

That sort of stuff.

And then when that happens, there's a form, a family law form that most super funds will have that rolls the money from one fund to another. It's a relatively straightforward process of these days from an administrative perspective.

But getting to.

That point, sometimes you get people who are very short term in they're thinking, I want at least possible super because I want is much.

Money in my bank account.

Other times they'll be focusing on that super Again, it really plays back to how they're going to maintain their life and moving forward, and is super the best place for it if they don't take the super how they're going to get money to retire?

All that kind of stuff.

Okay, is there any variation when it comes to self managed super funds? Let's see mom and Dad are the SERF match super fund.

The two trustees a really fun one.

Actually, I just did SPT points for advisers on this recently because back in what's again, when you look at the dynamics of relationships, we have a self managed super fund because the person who was running the money is it was a good idea. Maybe their business premises is owned inside of the fund.

So the same issue emergen as I imagine the person really runs it.

Yeah, but what you again have is the amplified effect that all trustees have to know how to run the fund.

And have full responsibility for it.

And you've also then got to be acting in the trustees' best interest and or best financial interest, and.

They have divoting life goals.

So it might makes sense to retain the fund right now, but because of business premises is in it, you can't split it and almost into things. But people repartner lives change direction, maybe they just don't get along, and maintaining that connection can be really hard. I've seen cases where partners have taken limited power of attorney over their form of spouse's power to trust, the obligations, and that's just

Complicated, more complicated understand and tell me what if it was the case that they wanted to split and they wanted to split everything and the core of the self maner super fund was a business premises because they used to have a shop or whatever. Do you have to sell the property at market value and split it is that what.

Happened again would come back to how you decided to divide up the assets, whether the balances were segmented, in the first place, there's no have tos.

But in regards to the divorce process.

But from a super fund perspective, it has to be arms length transactions, market value.

Everything has to be above boarder clients.

So there's no give from a family or perspective, and that your super responsibilities to struss they are the same.

Responsible and the fund must get the value market value for the asset whatever it is, including that whatever you had in it, including a business premises. Okay, really interesting, absolutely absorbing. Let's come back and we're going to cover folks how to divorce in the best possible financial fashion. Back in a moment. Hello and welcome back to the Australian's Money Puzzle podcast. Okay, today we are talking about divorce and money, the best way that you or you

I'm going to be vague on the legal side of it. Because I'm not a lawyer, but the financial advisor supports the lawyer in this process. But what I've seen work really well. Firstly, working with professionals will make your life easier. People fear divorce lawyers or financial plans because of cost, but inevitably, by working with professionals things to done more efficiently. You're getting your unbiased or your biased to you advice. It saves you money the end of the day, because

Going, why do they do that? Why do they do that? Are they hiding money? Are they hiding assets of things?

And a lot of my job in this instance is explaining, you know, this is how this works, this is what they're trying to do. I can see how this has played out the way it has and unless they're going for that or this will come out in the whitewash because of the disclosure of assets. That again decreases the temperature.

I expect you have what goes without saying that if the person the partner on the other side has a lawyer and an advisor and you only have a lawyer it sounds to me like you should have an advisor. I think that sounds like basic logic in terms of the balance of power. The other thing I would ask you is what about priorities? When you're sitting there with the client and you're saying, Okay, here we go. This is a divorce. Again, my client is a very sophisticated operator,

Super all of those things?

So I think the number one priority is understanding your point about just signing things. It's a classic example of trust that distributes to both parties, and the person just signs it every year and all of a sudden they're going, what am I signing? I don't actually understand what's happening. I think getting across and understanding the current state of play is really important because that helps them make a better decision. That can be as simple as the budget,

To do that for?

We've got these kids fees, We've got these medical costs at this sort of stuff that piles in.

Who's covering what? How is it paid for?

Keeping that as clean as possible and as transparent as possible again decrease the temperature, but also allows a cleaner process at the end of the day because it really gives evidence to what the needs are of individuals, and I suppose then helps us frame the outcome. What are things going to be at the end of the day.

Can you give me an example when you say someone's going for blood, Can you give me an example of the low hanging fruit for the arch aggressor.

Valuations?

Evaluations?

Evaluations is, yeah, I have a pointed a value are Oh, this is a I've used before, And it turns out there's been some communication about the nature of this obscure business that they had, or they might have farm land or.

Something like that.

Whether it's a business or there's an asset that's hard to value that's illiquid, that's a massive area for I suppose play, and also a dynamic of understanding that a person who bought it for a certain reason may not have told the other party what the potential opportunities in this business. Maybe they're in the business and it hasn't quite clicked over that winning point, so it's not really much of a business. Don't worry about that one. I think it's going under any way, these sorts of things.

That's really interesting and oldmore plays back to your original point at the start of getting advisors in before the settlement, because the settlement assumes the evaluation. We're correct, Yeah, so what what happens? So let's say so let's say the dispute emergers, and what happens is that the partner said such and such a business was worth X, and the evaluation is clearly comically low. What do you do?

My job in that situation sits more of a supportive position. What are the lawyers will tend to do is send letters back and forth in various tones, depending on the style of lawyer they are, whether they are more litigious or more cooperative, and they will come to an agreement of an independent valuer that the clients agree to spend

What do you mean amazingly varied in their talents?

Just that the angles that valuers take these are largely people who work in M and A. They don't just look at it and go, oh, this is a business of X style, therefore it's worth X times eap it or revenue or something. They'll look at it from multiple angles. They do cash flow, they'll do forecasting. The reports that you get from valuations can be really good, and then that can give an indication of whether something seems reasonable.

Do they keep fighting? Is this enough?

Do that?

Yeah?

That's where I come in of if this was the outcome we got, what would that mean for you? Do you want to keep fighting for another two years? Or do you take this and go?

You're something like an expert witness there. Yeah, yeah, okay, I can I ask you one last thing on this issue about money being touped away a secret accounts, sir and all that sort of thing. Is the tax system and financial system sufficiently transparent now that you would be confident that you have a clear picture of the money held in accounts by both parties?

I would like to think so. But USB stics with crypto. Whilet's exists, sometimes people have lost them genuinely.

I think that's I never thought of that. Crypto rights increasingly common, I'm sure.

Yeah, yeah, I think I would like to have confidence that people disclose sets disclosed international holdings do the right thing. But I'm sure there is examples of that not being the case.

But yeah, and of course, once upon a time whatever Swiss accounts. So we're only for the very very wealthy. You know, I can open a Swiss account in ten minutes. I could open a Swiss account when the minute we finished this show, I could have it done in twenty minutes. Yes, okay, terrific, Very interesting, Nathan. I think we might hold it there and go to questions, and I expect we may get some questions off the back of today's show specifically, but

I think that they did some things. Some changes happened, but nothing I would say that moved the needle enough. There was one experience exemption for education standards, which came in so late that I think a lot of people who had the experience, who didn't do the education would have left the industry already.

And they proposed a piece of legislation.

Then they didn't go down very well, so they changed the acronym and re launched it, and then they launched a half version of that right beforehand. But if I went the full term the industries largely it's changed, It's evolved, but not at the end of any substantial show.

At the end of the day, this is all about how much financial advice costs, and if it costs five thousand a year or so to have an annual review of your advice. These are industry figures when we're talking about specific projects. Unfortunately, divorce being the issue of djuur, here any guidelines to what it would cost people to use an advisor.

In the situation my I cank my face sit somewhere around seven and a half to thirty depending.

We'll leave it at that. We'll assume that is a sort of industry standard, and that is quite a ranger give us.

It's much more than the standard.

Or I see, Pat asks, do you think the big super funds like A or T being now? I think the number two fund, because of course it was the combination of Sun Super and q C will return a positive or negative return at the end of this year and the next. I be better off putting my money in a bank term deposit Number one. Pat, We don't give advice number two. We are not going to talk about whether that particular fund art will give you a

My answer, which I'm sure is frustrating, is it largely depends on who you are, what your situation is.

What did it ever make sense to order cash.

If maybe you needed the money in the next twelve months and you any loss of capital would mean you couldn't achieve what you needed to achieve, or the thought of losing any money kept you awake at night. But trying to time the perfect day to do that, as we've known with recent volatility, let alone normal volatility, is impossible and you will get it wrong.

Okay, but it's worth anning. We've had the worst day on the share market since COVID, and we've had the best day since COVID on the share market in recent weeks. In fact, it happened inside a week. These are wild times. And the other thing I think that's important to anyone considering going to cash, going partially to cash, is that

I think it's my general philosophy so that I can do it simpler, easier, or with less riskquy wouldn't I? And so if the ETFs that you're wanting to invest in you want some control, you want to take out of it at some level. If they're available and you can put the weight in them that you'd like to, because that's often a limiting factor, then and you can do it at a cheaper cost, with less responsibility and less administration.

Why wouldn't you.

I think where people have ETF portfolio that aren't available on these menus, Remember they are restricted, they're going to take a more conservative view on what they can add because they're on the hook for allowing their members.

So they've got to be there's very much the sort of bread and butter vanilla.

And they're going to put caps. I think there's often a complaint that maybe the cap on a Goald ETF is too low.

You're talking about industry funds.

Now, yeah, industry funds.

Yeah, they're going to say you can only put up to twenty percent of your money in this particular ETF because of the risk grading we've given it.

And that might be a reason.

I think one of the big super funds was in the news recently for commentary around crypto ETFs and why they wouldn't allow people to invest in them. And if you can't do what you want to do and it makes sense to do, and you're taking control of it and responsibility for it, and you understand and the responsibilities of a self manishiper fund the work involved, then that's when you start looking at that as an option.

Okay, very good, all right, I can see your I can see how your balanced demeanor is useful in the job you don Yeah, yeah, yeah, thank you very much for being on the show today. Great to talk to you again. It was a very interesting single subject show that we should have done a long time ago. It was only when I saw, when I thought about it and I thought about you, that you do that. I said, this is the time to do it. This is when there is actually something of a lull between these at