5 key financial steps to take after a relationship breakdown…

Admittedly, Valentine’s Day isn’t an ideal time to talk about calling it quits. It’s an annual day to celebrate romance and love.

But the sad reality is that relationship breakdowns do happen on a regular basis. And there’s typically financial and other assets that need to be carved up as a result.

Separations and divorces are big business, especially for real estate agents and lawyers.

Australian Bureau of Statistics data on marriages and divorces, released in December 2023, shows that the median divorce age for men and women was 46.7 years and 43.7 years, respectively. The median duration of a marriage to divorce in Australia was just 12.8 years.

Generally speaking, by the time most couples reach their mid-to-late 40s they are likely to have accumulated a wide mix of assets including their home and contents, cash, financial investments, superannuation, motor vehicles, boats, collectibles, and potentially other assets such as investment properties.

They are potentially all on the assets chopping block, to be divided up after a relationship breakdown, and often there’s big financial sums at stake. Keep in mind that even assets held in one person’s name (for example, if only one person’s name is recorded on the title of a mortgage) are generally considered as jointly owned assets for the purposes of finalising financial settlements.

How this is done is usually by negotiation between the two parties (either directly or through a lawyer) or, where an agreement can’t be reached amicably, by an enforceable court ruling.

Either way, there are generally a number of common financial steps for both parties to take during the process of achieving a financial settlement. Most of these should be done at the same time, or as close together as possible. Below is a checklist of key financial action steps.

1. Get your paperwork in order

This step involves collecting all relevant documentation that will be needed to help identify assets and separate finances, including bank account, credit card and superannuation fund statements, personal and business tax records, mortgage documents, all investment records and statements, and other relevant financial information such as any rental income and expense records.

2. Separate your finances

Another key step is to sever all financial ties, including joint bank accounts and credit cards, to cancel any overdraft facilities on accounts, and to change the PINs and passwords on personal online accounts. Another component of this is notifying lenders of the separation. Redraw facilities should be cancelled, offset account amounts should either be applied to the outstanding loan balance or withdrawn and divided by agreement, and arrangements should be made between the parties to cover ongoing mortgage and other loan repayment obligations.

3. Calculate assets and liabilities

The date the relationship ended (in most cases this is the separation date) should be recorded and used to determine the value of individual assets at that point. This usually involves obtaining independent third party valuations on assets such as properties and other possessions. All debt obligations (loans) at the recorded date also need to be calculated to determine what will need to be repaid to lenders on the sale of assets.

4. Analyse income and expenses

Relationship breakdowns often result in a significant loss of regular income to cover everyday living costs. So, it’s important for both parties to create a budget to map out income being received, and expenses to be paid, to determine their financial position. It’s also important for parties to investigate whether they are entitled to any government assistance and services, maintenance payments, and other financial relief.

5. Seek out professional advice

Receiving professional advice is essential in resolving financial settlements. As well as legal advice and support, parties should consider financial advice, accounting advice, and advice from other experts if required.

The Federal Government’s Moneysmart.gov.au website has additional information on key financial steps in separations and divorces.