As financial advisers, we often get to witness the full breadth of the important life events that our clients experience through the years; from happy ones when they get married, have children or when their children finally finish school (and they are free from private school fees). To sad times when our clients may have separated or divorced, or become seriously ill and unable to work, or have experienced a death in the family. 

Our clients rely on us to help guide them through the ups and downs and provide impartial financial advice to protect their best interest through each situation. 

Divorce can take a significant emotional and financial toll on the family, especially when children are involved, and there are many adverse implications to consider. While many may find the conversation awkward or unpleasant to discuss with their partners, much like speaking to an estate planning lawyer, it is important to speak to a family lawyer before or during a marriage to outline the division of financial resources in the unfortunate event of divorce. This may involve setting up a Financial Agreement so both parties are well-informed of their obligations and the impact of divorce on their individual finances.

Of course, many may only choose only after the marriage has ended, to engage with a mediator or divorce lawyer to help divide the assets. However, it can be difficult to negotiate an equitable split by that stage. It could also be costly and time-consuming to engage with lawyers or to go through the Family Court to achieve fair outcomes for both parties without a Financial Agreement in place.

Heavy financial impact 

Based on numerous studies into the economic consequences of divorce, women in Australia experience an approximately 21-30% decline in income, which may take roughly six years to recover, while divorce only had a very small effect on men’s income (a decline by 5%) that is quickly recovered (Broadway et al 2022). 

While the average rate of decline in income for men and women varies between countries, it is clear that women experience significantly larger declines in income than men post-divorce in US, UK, Germany, Australia, Switzerland and Korea where the studies were conducted (De Vaus et al 2015). 

Other issues might disproportionately affect divorced women more than men. These include insecure housing and trying to re-enter the work force or find adequate roles that can support their cost of living while also still allowing them to remain as primary carers or to be the sole parent for their children. 

As women typically take time off work for child-caring duties, or spend years working in low-income roles to have more time to care for their children, this leads to lower earnings and savings, as well as reduced super contributions over her lifetime (Dewar et al 1999). This affects her ability to save for retirement, afford sufficient life insurance or income protection, or progress in her career to higher paying positions quickly. It puts her on the back foot when going through a divorce compared to her male counterparts. 

Some 34% of sole-parent households in Australia are in poverty (Australian Council of Social Service 2023) while separated women in the UK are found to have a poverty rate of 27% - nearly three times higher than men (Jenkins 1999). 

Separated women may also have to wait weeks or months to receive income support payments from Centrelink as a sole parent or via Newstart and they may not be able to rent until they have a source of income. This potentially leaves a woman and her children in limbo after the family home has been sold in the divorce. Buying a new place with half of the proceeds from the family home can still be costly with mortgage repayments and upkeep. 

The Household, Income and Labour Dynamics in Australia (HILDA) survey states that single-parent families have the highest rate of housing stress (Council of Single Mothers and their Children 2019). About 86% of child support recipients via the Australian Child Support Agency are women, while the majority of payers are men (Women and Money n.d.). 

Statistics show that current income support payments are below poverty lines (Melbourne Institute 2021) and even with child support payments from the father, may not be sufficient to cover the basic cost of living (Valentish 2019).

Lasting effects

The long-term implications of divorce on retirement savings are also evident. The average superannuation payout for women is a third of the payout for men, despite women living longer, while the wage gap continues to contribute to this problem with women working full-time earning 16% less than men in Australia (Australian Human Rights Commission n.d.).

Other issues may arise during a divorce proceeding which can financially impact the split of finances. One is the understatement or hiding of assets and income by the higher income earner of the family. Superannuation assets which should be included in the split may be overlooked. The higher income earner may refuse to pay child support or to continue paying their share of the joint debt. 

Accordingly, there is great value in receiving professional advice from family lawyers and financial advisers during a marriage to ensure the protection of both parties in the event of a divorce. The goal is not just to avoid financial hardship but to achieve financial independence and security in a fair and equitable manner which will help the overall welfare of the family and children.
 

Editor’s Note

By Tony Featherstone, consulting editor of ASX Investor Update. The views expressed in this article are his alone and may not reflect those of ASX. Do not read the below information as advice on divorce and share investing. Seek specialist advice or do further research of your own before acting on themes in this article. The above questions are intended as general prompts to help people who are going through a divorce – and are unfamiliar with share investing. The list is by no means exhaustive. 

This is a checklist of some practical considerations regarding divorce and share investing. Splitting financial assets can be complex and every couple is different, so it pays to get legal and/or financial advice. 

Here are 10 areas to consider for intending divorcees with share investing and divorce settlement, and possible questions to ask:

1. Share stocktake

What shares, managed funds, Exchange Traded Funds (ETFs), Listed Investment Companies (LICs ) or other financial assets do we own?  How much are those assets worth? What proportion of our total assets do the shares comprise? 

2. Other accounts

Are there other accounts associated with our share investments? For example, a cash-management account that has money in it to buy shares. Is there a margin lending facility for our shares and outstanding debt? Have we borrowed to buy shares against equity in our home or used funds from our mortgage offset account? Have any accounts been opened in our kids’ names and were any shares bought to be used later for their benefit, such as to fund private-school fee expenses?

3. Share ownership

In whose name are the shares held? Through which investment platform (or broking firm) are the shares held? Do I have account numbers and log-on details to see our share portfolio? If we use a broker or adviser, do I have their contact details? Are the shares owned by us or through a Self-Managed Superannuation Fund, family trust or a company? Where does all the written correspondence from companies regarding our share portfolio go? 

4. Share decisions

Have decisions to buy or sell shares required my approval and did I give it? Can I put a stop on any current transactions in shares jointly or individually held? Will I be informed before any shares are bought or sold? 

5. Share performance

What shares or funds are in our portfolio? Why were they selected and is there an investment strategy? What type of risk does the portfolio entail? Is the money mostly invested in high-quality or riskier shares? How has the portfolio performed over short and long periods? How often have the shares been bought and sold? 

6. Tax position

What is our portfolio’s tax position? If every share was sold today, would there be a capital gain or loss? What is the tax bill if there is a capital gain? Can I afford to pay a tax bill if I need to live on proceeds from the sale of shares? Are our tax returns up-to-date? Will I need to pay tax on share transactions from previous years if tax returns have not been submitted on time? 

7. Dividends

To which account do any dividends from our share portfolio go? Who gets the dividends? Do any of our shares have dividend reinvestment plans, meaning dividends are used to buy more shares in a company, rather than paid as cash? Are dividends assessed against my income because I am the lower-income earner in the couple? When are dividends next paid from our share portfolio? Who gets any dividend income during the divorce-settlement process? 

8. Share split

What is a fair and reasonable way to split our share portfolio (this will typically require legal advice)? Will we sell the portfolio or split the shares? How do we decide who gets which shares? What happens to our Joint Holder Identification number for shares if we have one (a HIN is a unique number that identifies you as a CHESS-sponsored shareholder for all your Australian shares)? Will I need to get a new HIN if I decide to keep some shares that were jointly owned or buy new ones?

9. Advice

Who can I turn to for legal and/or financial advice on divorce and splitting share assets (Moneysmart.gov.au is a good place to start for general information on the financial implications of divorce). Many law firms specialise in divorce and family law and financial advisers often advise clients on investment issues around divorce. 

10. Learning about share investing

The ASX website is a great place to start for people who are new to share investing and want to learn the basics. ASX offers a range of free online courses that suits all types of investors. Through these courses, you can get a sense of the ‘language of the sharemarket’ and understand the basics. This knowledge can potentially help people – particularly those who know little or nothing about the sharemarket – ask questions about shares and understand the answers. But nothing beats seeking specialist legal and/or financial advice in this area.

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References

Australian Human Rights Commission n.d., The gender gap in retirement savings

Australian Bureau of Statistics 2021, Estimating Homelessness: Census, ABS, viewed 18 August 2023

Broadway, B., Kalb, G., Maheswaran, D (2022), From Partnered to Single: Financial Security Over a Lifetime, Melbourne Institute: Applied Economic & Social Research, The University of Melbourne

de Vaus, D., Gray, M., Qu, L., & Stanton, D. (2015), The economic consequences of divorce in six OECD countries (Research Report No. 31), The Australian Institute of Family Studies

Dewar, J., Sheehan, G. & Hughes, J (1999), Superannuation and divorce in Australia, Australian Institute of Family Studies

Jarvis, S., & Jenkins, S. P. (1999), Marital Splits and Income Changes: Evidence from the British Household Panel Survey. Population Studies, 53(2), 237–254. 

Melbourne Institute (2021), Poverty Lines: Australia, December Quarter 2021, Melbourne Institute Applied Economic & Social Research

Sebastian, A & Ziv, I (2019), One in eight: Australian single mothers’ lives revealed, Council of Single Mothers and their Children

Valentish, J (2019), Child support: ‘When we interview women, they cry and cry and cry’, The Guardian

Women and Money n.d., ‘Separation and divorce’