Your 7-step financial recovery plan after a relationship breakdown

As a financial adviser, I have sadly seen many people struggle financially long after a relationship breakdown. Poor decisions or a lack of action in the aftermath compounded their pain. In extreme cases, this led to delayed retirement, poverty, and even homelessness.

Thankfully, there is a lot you can do to recover financially as a newly single person. Here is a 7-step financial recovery plan after a relationship breakdown:

1. Separate your finances

You remain jointly liable for all joint debts while your name remains on an account and sometimes until financial settlement. That means your ex could max out the credit card, redraw loans, or rack up phone bills and you would still be equally responsible for paying it.

Joint liabilities may include:

• Loans, lines of credit
• Credit and debit cards
• PayPal and online payment providers
• Utilities and subscriptions
• Memberships.

Determine whether you need to close an account or change it solely into your or your ex’s name if one of you needs to retain it.

2. Change your passwords

Once you’ve separated your finances, ensure they stay separate. Change your passwords and card PINs – ones that your ex can’t easily guess.

This is something you should do regularly anyway, given the scourge of scams and cybercrime.

3. Update beneficiaries

Want to leave an unexpected windfall to your ex? Probably not. Yet that is exactly what could happen if you don’t update your estate planning to reflect your new reality.

As part of this process, be sure to update your:

• Will and its executor(s)
• Trustees of any trust or company
• Superannuation beneficiaries
• Insurance claim recipients
• Power of Attorney and Enduring Guardianship provisions.

4. Carefully consider your living arrangements

Housing security is crucial for financial stability, now and especially in retirement. That may involve a rethink of your living arrangements, since few separated couples continue living together indefinitely.

Ideally, you want to retain or secure a property in your own name. On a single salary, that may mean downsizing and/or changing locations. If you owned an investment property, that could become a roof over your head.

Beware the trap that many people (especially women) fall into when separating: sacrificing other assets and income streams in order to keep the family home for themselves and their kids, then being unable to afford to keep it.

5. Adjust your spending and investment plan

Expenses and opportunities to invest will be very different as a newly single person.

Living costs will increase since you no longer enjoy economies of scale (that is, singles pay more on a per person basis for groceries, housing, utilities etc.). At the same time, you decrease from two to just one income.

There may also be changes to family tax benefits, childcare subsidies, and pensions.

Conversely, you may now find opportunities to spend less or invest more. For example, car insurance may cost less by removing your ex if they were aged under 25 or had a poor driving history. Without your ex’s income, you may now qualify for government superannuation co-contributions.

Update your spending and investment plan to ensure you live within your means.

6. Embrace your new independence

The silver lining of any relationship breakdown is freedom and independence.

Financially, you can now align investments according to your own values and goals, and invest in your future earning potential with new training or qualifications.

Consider logistics and lifestyle too. For instance, you no longer need to live close to your ex’s work or relatives, allowing you to move closer to yours.

7. Get qualified advice

At a time of upheaval and loss, well-meaning loved ones will likely inundate you with advice. However, unless they are qualified professionals, that advice could inadvertently leave you worse off by being inaccurate or incomplete.

For example, many people don’t realise that superannuation is considered a joint asset – as part of a settlement, you may be entitled to part of your ex’s super if they have more, or vice versa.

Remember too that any professional advice you received as a couple is now outdated. So, check in with your own advisers ASAP.

Your lawyer can help to update your will and estate planning. Your accountant will assist with your new tax situation. And your financial adviser can help you make the most of your current finances while also maximising plans for a secure retirement, where you can stand tall on your own two feet!

Disclaimer: The information in this article is of a general nature only and does not constitute personal financial or product advice. Any opinions or views expressed are those of the authors and do not represent those of people, institutions or organisations the owner may be associated with in a professional or personal capacity unless explicitly stated. Helen Baker is an authorised representative of BPW Partners Pty Ltd AFSL 548754.