Commonly, dealing with divorce makes us feel overwhelmed and fragile, and it affects our decision-making process. When this happens, we might trust a task to the wrong person. For instance, a lawyer will most likely provide, even with the best intentions, awful financial advice. Maybe the family accountant suggests a litigation strategy that sounds great but ends up in disaster.

The consequences of making the wrong decisions will haunt us and in most of the cases, when they show up is either late to solve them, or they are irreversible. 

In this episode of the Divorce Angel podcast, I share with you the experience of this lady that is dealing with huge tax debt due to poor financial decisions, and I offer the best advice to avoid this situation. 

Let’s get into it.

Timestamps

How one woman received a $42,000 Tax bill after her divorce[00:01:45]

The first of the three ‘P’ for a successful divorce: Preparation [00:03:00] 

Finding the right members for your team [00:04:00] 

The second ‘P’, Planning [00:05:30]

The third ‘P’, Protection [00:08:00]

Asking for advice to the wrong person [00:09:45]

Facing the consequences of bad decisions [00:11:00]

How to prevent this from happening to you [00:12:00]

Links:

My book: The Jelly Bean Jar – Empowering Independence through Divorce

https://tanyasomerton.com/shop/the-jelly-bean-jar/

Join my Free Facebook Group here:

https://www.facebook.com/groups/divorceangel/

Divorce Roadmap Session:

https://tanyasomerton.com/divorce-roadmap/

Transcription

Hey, everyone, and welcome back to the divorce Angel podcast. I wanted to have a chat today about something important to me, and something about I get on my high horse. I had a message from a financial advisor asking for my advice after a client had found themselves in a very sticky situation. 

So what happened, she had now been divorced for 12 months, had consent orders go through to the court. And all of a sudden, out of nowhere, she received a bill from the Tax department for $42,000. Can you believe it? $42,000. 

How does a single mother with, I think she had three or four children under the age of 10, paying a mortgage, living week to week, getting no child support from their ex-husband, manage to pay a bill of $42,000 for the Tax department?

1:45  

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Now, how this has happened is simple, but everyone misses it. And it’s something about I bang on all the time, and it comes down to the three “P” of divorce, preparation, planning and protection. So let’s start by going through the three “P” for a successful divorce, and then I will explain to you what’s gone wrong in her circumstances. 

When we first get divorced, or when we first separate, we must be prepared. And it’s what I do with my clients. When we do what I call a Divorce Roadmap Session, we make sure that we’ve done complete due diligence on all the history and everything that’s going on in the relationship so we can provide that information to the lawyer. And as you hear me say all the time, if you don’t have your plan, you become part of someone else’s. So we need to make sure that we’ve got all of the preparation right. 

2:57  

So what does preparation include? It’s things like making sure that you have all of the appropriate paperwork. Bank statements and rights notices, vehicle valuations, all of those things about your particular lifestyle and circumstances. It means that you’ve done some preparation work around who needs to be in your team. So, if you are working with me, you will have done all your homework. I often provide my clients with phone numbers of previous clients so that they can talk to them. I’ve got testimonials of people they can talk to, and obviously, they can listen to what I think and how I address divorce by going back and listening to my podcast. So they know if you’re going to work with me, you know straight up who I am, what I stand for, and what I’m trying to achieve because I have it everywhere. You can go to social media, you can read my book, you can see exactly what I stand for. 

4:03  

When it comes to other people, though, that’s not that easy. So when you’re researching who you should have in your team, you need to make sure that you’ve done checks and balances on them, that you know whether they’re the right person, whether the lawyer that you’re about to choose, as I talked about before, is it outcome-focused or income-focused? Do they want to get you the quickest outcome possible? Or do they want to prolong it so they can get income for themselves? It’s really important to understand the two differences. Then there are the accountants. Do you have a family accountant that you have always used? Is it the best idea to go and asset accounting for some advice, or should you go and get some independent advice from someone else, so you make sure that what you’re receiving is up to date and is not biased information?

5:00  

Or are you better off to stay with the accountant that you’ve got because they know the ins and outs of your situation? Or will they be conflicted between your ex and yourself? So many questions need to be answered. But that all comes down to the preparation, then you might need to prove who bought what into the relationship. And you can do this by providing bank statements as to when you first got together. This is what I had in my bank account, or this is a property that I owned, from this period to when we first started our relationship, whatever the case might be, but trying to prove what you state is true and correct is important, and it makes the life of the lawyer a lot easier. And then there might be other things, for instance, you’ve received a redundancy or an inheritance. Can you show a bank statement that shows that money going into your account to prove a timeline as well? So that’s preparation. 

6:01  

We must do that work because you do not want to build your divorce on a house made of toothpicks. Because if you do, it’s going to come crumbling down. You want to make sure you’ve done all of your preparation, and your framework is solid for the other two parts of your divorce, which is the planning and the protection phase. So when we move into the planning phase, this is where the strategy comes down to, what is it that you want to achieve? What assets do you want to keep and why, and can you? So in other words, if you want to keep the family home, and you need to pay out a mortgage, can you afford that mortgage? Have you been and seen a mortgage broker, and you know for certain you can service the loan?

6:56  

Now, this is important because this is also where you come to hire the experts that you need on your team. So you’ve already done the preparation work and you’ve maybe interviewed a few of them, you haven’t just gone to one, you’ve interviewed more. And what happens is, you now know that yes, this is the person that I want working with me, and you hire them. That’s what happens in the planning stage. So you put together your strategy, your team, and you get to work on what you want. And it’s in the planning stage that a lot of the negotiation and all of those other things might happen. Now with my clients, what we try and do if we can, we try and negotiate 80% of the outcome before we go to the lawyer. So we already know for certain that this is what the two people want. And if you think about the 80-20 rule, most of it if we can get done it cuts a lot of costs, because then we are negotiating on 20% of what’s left. Either the pool or access to the children, whichever is your biggest issue at the time. And then comes protection. 

8:15  

So protection is where we talk about updating wills, financial beneficiaries in superannuation and life insurance policies, or any sort of trauma policy. We have to address any tax implications from no longer being in a relationship. So for instance, say that you offset some of your income by sharing that with your wife or someone else, or you had a family trust, and you offset that money into any of those entities. If you’re folding those entities up, what does that mean now for your tax position? And making sure that you put a strategy in place with your accountant to make sure that you can afford, or you don’t just get this shock at the end of the day? ‘Wow, this has come out of nowhere and I didn’t expect it’. And then transfer of titles. If you’re going to keep the house, make sure that the transfer of titles has done. Here in Australia, when you register a business, that businesses registered with ASIC. 

So if you’re no longer going to be in a family business, or you’ve run a family trust, and you’re no longer going to be part of that, making sure that you’ve signed documents to resign from those businesses or trust. I’ve seen before where that has been spoken about, but when we’ve gone through and done reviews on ASIC, people are still listed as directors of businesses, you need to make sure that that is all done.

9:43  

So let’s get back to this lady with the $42,000 bill that comes out of nowhere. In her instance, what happened, she went to a lawyer, and she trusted that the lawyer was going to look after her best interest. Now, lawyers are not accountants, they’re not financial advisors or anything like that. That’s why I talk about your army of angels and making sure you have the right people in your team. So she went to a lawyer, and her lawyer helped to negotiate her asset division with their ex-husband, and the consent orders or whether it be binding financial agreement winning to the court. The problem was, the couple sold an investment property. Now that investment property was in her name. And there’s nothing wrong with that because a lot of couples do that. Now, if you’re the highest earner, the property might be 100% in your name, because you want to mitigate tax, or if you want to protect your assets, your asset might be in the name of the other partner. 

10:54  

Now, in this instance, from what I understand, the husband was the major earner. The investment property was in her name because they wanted to protect it. And it was 100% in her name. But what that means is when they sold the property, she is responsible for all the tax implications associated with it. Now what we do in the planning stage when we’re working with people, if they have assets, we make sure that we understand if a property, or business, or shares, or something like that is gaining so, we ask the accountant to provide what the capital gains tax will be on that sale. And then that cost is listed on the consent orders as a liability and something that both parties are responsible. So we would get a rough idea of what would be the tax bill. We would make sure that when the property is sold that tax went into, either the trust account for the lawyers or the conveyancer or the accountant, someone like that, to make sure that when the next G’s tax got done, that the bill could be paid out of the money that’s come from the relationship. Now, that hasn’t happened in this woman’s instance. And so the consent orders have been written up. The lawyer has not known the questions that the lawyer should have asked and never instructed her to speak to her accountant or to find out what is meant to happen. And she never knew what questions to ask. She was completely in disarray given what was going on. And I’m not saying that he didn’t feel the same way, the ex-husband, but I am saying that divorce is not easy. It’s emotional. If you do not get the correct guidance when you were selling your assets. 

12:53  

This is what might happen. Now they’ve said to me, what can she do? Well, she can go back to her lawyer and ask that question because she needs to review the consent orders and see if it has been stipulated in there. But from what I understand it has not. She either needs to go back to the court and ask for an amendment, which is going to cost money, which she doesn’t have. The tax department has said to her that they’re happy to give her a payment plan, but the payment plan was something like 1200 dollars a month, and she’s struggling to pay the mortgage. Little on now paying these 1200 dollars a month. And the text department has the ability, if they want, to go in different paths to recoup the money. Now the ex-husband pretty much is high and dry because legally the properties are in her name, it’s her responsibility. It’s up to her to pay the debt. 

13:54  

So what I want to make sure with you guys listening, please, please make sure you get the appropriate advice from the proper people. Divorce is like putting together a whole lot of jigsaw puzzle pieces. To get the picture at the end, if you don’t have the right pieces of the puzzle, this is the consequence of what may happen. I don’t want anyone to be left high and dry paying a tax bill of what’s happened to this poor lady. I hear these stories over and over again, and they make me sick to my stomach to think that people are paying for the right advice and then find themselves in these situations. It’s heartbreaking. So I’m now going to hop off my high horse but hopefully, you guys have learned something from this poor woman situation. We will see what we can do. But to be honest, there’s very little I think that can happen. Because she and her ex-husband are not on speaking terms, and he’s certainly not going to come back to the party now because they’ve negotiated their financial settlement. But who knows, the world’s a funny place. All right, I want you all to have an amazing week. Keep smiling. And if you’ve got any questions or need any help, please you know where I am. I’m here to assist. 

15:20  

Okay, I’ll talk to you later. Bye for now. 

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