The current stats show that couple’s getting divorced are in their early 40’s. Women 42 and men 45 years old.
This is also the period in our lives when we acquire most of our wealth. After our child rearing years, capital growth in our family home and careers taking off when most senior promotions and pay increases occur. It is also the period when people start paying off their mortgages or start purchasing investment properties and shares. All with the intention of retiring and funding the future.
It is for this reason that making the BEST choices is imperative. And that includes which investments to keep, to sell or transfer to your spouse when you decide on your financial separation and agreement. You do not want to have an STD ( Sexual Transmitted Debt).
This is NOT something a lawyer should be advising on. In this podcast, I outline the dangers of allowing this to happen and how it can damage your financial future.
Superannuation and some Investments[00:02:00]
Please meet Karen [00:03:00]
Lawyers aren’t financial advisors. [00:06:00]
Not all assets are valued the same.[00:08:00]
Debt transfer [00:11:00]
50/50 split is not valued the same and let me explain why.[00:13:00]
Considering retirement, no matter how old you are now. [00:15:00]
My book: The Jelly Bean Jar – Empowering Independence through Divorce
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[00:00:00] Welcome to Divorce Angel Podcast and thank you for joining us. Get ready to uncover the strategies everyone can implement for a successful separation and divorce. This will save you valuable time, money, and emotions while learning the secrets to you happily ever after. Now, your host, my wife, Tanya Somerton.
Hello and welcome back to the divorce Angel podcast. My name is Tanya Summerton. For those of you who don’t know me, I help people streamline the process of divorce with a step-by-step system and an army of angels. We help people put their lives back together. Some people call me a divorce doula, some people call me the divorce angel, the Uber of divorce. You name it, I’ve been called it, and probably some bad things as well buy some partners I’m sure. I thought today what we might do is have a talk about how we work through our client’s circumstances and what we do to help them out.
If we were to look at the average age of a person getting divorced, a the moment a woman, the stats say, is 42 years old and a man is 45. If we look at those stats, we could assume that most couples have been married for [00:01:00] 10 to 20 years. During our 20s and 30s, we are learning our craft of our employment. That’s if we have a full-time job. So, we don’t own a great deal of money in our 20s and, if anything, we’re building our careers and trying to really put our foot in the door as to where we want to get to for the rest of our lives.
Most of our income or the growth in our income happens when we reach our 40s and into our 50s, but most of it happens when we get the biggest pay rises normally when we hit around the 40-year-old mark. If you look at that, you could easily surmise that people getting divorced in their 50s will probably be at their peak or reaching the peak of their income, and that’s certainly something that we find with the work that we do. We would also assume that most couples in this age bracket would have their own house, [00:02:00] they would probably have some superannuation and some investments. What’s really key when you are going through a divorce is understanding what you’re able to keep and what you can’t keep, and having a very clear strategy around that.
Not long ago, I worked with a client who had come through a property group that I do a lot of work with. The organizer of the group, he’d said, “Tanya, I’d really love you to have a chat to–” let say this person’s called Karen. “Can you have a chat to Karen? She’s going through a divorce and I’m just a little bit worried about how they’re dividing the assets.” I was happy to help. Karen and I sat down, and we went through all of her assets and her liabilities and what her financial situation looks like.
They had five houses. They had their owner-occupied house or [00:03:00] primary place of residence, and then they had for investment properties. The investment properties were all over Australia in different states. The husband, who had been the primary income earner, certainly hadn’t been the driver behind where they had purchased the houses, but he really was the person that was helping servicing the loans. He’d gone to a lawyer and said to the lawyer, “I want to keep these houses. I want to keep our owner-occupied house or our primary place of residence.” because he said, “I’ve spent the last 15 years renovating this property and I really want to keep it. I’ve put some love and sweat and tears into this and this is the house that I want to keep.” She moved out of the family home. Karen moved into a rental property and the husband her helped to pay the rent.
What then happened, he went to a lawyer then decided to divide up the four other investment properties. When I [00:04:00] got involved, Karen had said to me, “My lawyers had a look at these investment properties and she’s telling me that I should accept these two here and my ex-husband’s going to keep these other two. What the lawyer had not taken into consideration when she was looking at these properties was quite a few things. Firstly, she didn’t look at the future growth of the areas that the properties were in, she didn’t look at the mortgages that were against the properties, how long the couple had owned each of the properties, what sort of rental yield they were getting from these properties. The decision that Karen’s lawyer had made was, “He keeps two and you keep two and I’m pretty happy with that. So we two lawyers have decided that this is okay. I’ve drawn up all the consent orders. Please sign here.” When I looked at what the lawyer wanted her to sign, [00:05:00] alarm bells started ringing for me.
Two of the properties that the lawyer wanted Karen to accept– One was in a mining town and the whole bum of the economy had fallen out. When I looked at what she purchased the property for and what the property was now worth, there was a difference in value of nearly $200,000. They purchased it for roughly $330,000 and the market value was probably around, if she was lucky, between 120 to 150 but the mortgage on that property was still 300,000. If Karen took over that property, she would have had a negative position not a positive position, a negative position because the equity within the house was less than what the house was [00:06:00] worth. That was the first problem.
The second problem was the next property the lawyer wanted Karen to take over was a property that was in Queensland and the property itself, whilst the couple had it for a fair amount of time, was in disrepair. It needed quite a bit of work done to it. The other thing was that the tenant that was in the property had a lease for another two months and then was going to move out. That meant that Karen had to try and get another tenant into the property, not to mention the repairs and work that needed to be done that had been highlighted by the real estate agent, and also that that property, over the period that the couple had had it, really had had no capital growth.
So to me, it really wasn’t a diamond in the rough either. It was probably a bit of a lemon, to be honest. Then I went and had a look at the houses the [00:07:00] husband was keeping. I can tell you that out of the four properties, he was getting the best two. One of them was in a high growth area. They’d only had it for probably two years and it had already gone up quite a bit in capital growth and the future for that area looked really really bright. The other one, he purchased with the help of an inheritance from his father and he had emotional attachment to that one too.
Here we had a scenario where she was going to take on two of the worst properties and he was going to get the best property. So I said to her, “Why would you want to keep these two properties?” and she said, “Well, it take quite a lot to get these investment properties and I just don’t want to waste the stamp duty and deposits that we’ve put into them.” What she didn’t realize was that she was in a negative position if she took over these two properties.
For those of you who don’t know, [00:08:00] what happens is when you finalize your agreement under a spousal transfer, that can happen without any stamp duty implications. It meant that she thought, and this is what her lawyer had said, “Well, when we transfer these properties, you’re really going to save money because you don’t have to pay stamp duty again, and then you don’t have to have a deposit.” but at the end of the day, the properties were no good to start with. There’s a rule in investment property and that is when you buy them, you need to make sure that if they’re not worth it, you get rid of them quick because they’re holding costs of them can be very, very expensive and can cost you quite a lot if they’re not in the right areas.
My advice to her was to go and get some information from a financial adviser and really dive deep into why she would want to keep those assets and the money that it was going to cost her to hold them and to tell the lawyer just to put [00:09:00] everything on hold for just short period of time while she did a little bit of due diligence. Once she’d done a little bit of that, we’d worked through some of the issues that I had highlighted, she realized that her lawyer was not working on her best interest and really did not know enough about her personal circumstances. She really did not know enough about investment properties and the consequences of what she was getting her client to sign up to, but the husband was going to be in such a better position than what Karen was.
Ultimately, the outcome of this scenario, before they even sign their consent orders, that if he does not want to keep those two properties that he was offering to Karen, that the couple sold them together. Why did we suggest that? By them selling those properties together, it meant that he was also responsible for their debt. In other [00:10:00] words, the house that was being sold in the mining area, he had to also be part of the house being sold for less than what the mortgage was. All of a sudden, he was responsible for the sale of that property, and he didn’t like that because he thought he was getting away with, to be honest, blue murder before we got involved. That meant that the ex-husband now had to pay towards getting those properties ready for market. So those two properties got sold, and the debt for that property, the one in the mining town, come off the couple’s asset position. So they both paid for it, not just Karen. The other property got sold, but before it got sold it needed work done to it so both parties paid 50/50 to get the property on the market and they both covered the costs.
In the first scenario that she was going to sign with the lawyer, she would have been responsible for all of [00:11:00] that debt. All of a sudden, straight away, she’s in a much better position just by working with us and putting together a strategy like this. Originally, he was going to keep the primary place of residence and the two other investment properties. What happened, in the end, is by the time everything else had been sold and he went to refinance all of those loans, because now he had to pay her out because all of a sudden she wasn’t taking properties anymore so she needed cash from him to be able to settle their agreement. Where was he going to get these cash from because the whole scenario had now changed? He tried to refinance the properties and he couldn’t service the loans, and before we knew it he had to put two of them on the market just so he could sell them and be able to pay her out.
What I’m trying to say here is it’s very, very important that you get the [00:12:00] advice of the experts before you accept what a lawyer puts in front of you. A lawyer is very good at law, at legal work, but it is not their job, and they should never ever advise you on what to do financially. What had happened with Karen, she just trusted that the lawyer knew all of these. All the lawyer did was say, “Okay. Well, there’s two houses here. There’s two houses here. This all seems above board. You’re getting your fair share. He’s getting his fair share.” and that’s what her job is to do. But unfortunately, it’s so much more than that. I have a sign that sits above me every day and it says, “Divorce is so much more than going to a lawyer.” and it really is. The biggest mistake, financial mistake, I see people make is they accept what their lawyer says. It’s not your lawyer’s [00:13:00] job to tell you what you are entitled to financially.
You need to provide a financial position statement to your lawyer, and it’s not just what it is as of the date that you are getting divorced. There’s so much more that needs to be taken into consideration. Right there, when you look at it on a blank sheet of paper, she was entitled to two houses and he was entitled to two houses but what didn’t get taken into consideration was future earnings, all of the other things that the lawyer knew nothing about like the repairs. It’s not the lawyer’s job to go and do any of that work. That’s your job. That’s a strategy you need to be putting together. You need to understand if you’re going to accept an asset that that asset is really something that’s going to take you to where you need to go. You need to be thinking of your future plan and what your plan looks like and does this asset fit into [00:14:00] where you want to get to or will it be just an anchor around your neck. That’s what would have happened to Karen. She was able to walk away with quite a good cash position. With that cash, she was able to purchase the rental property that she was actually living in and she also went and purchased another investment property.
Something else that was really key for her that hadn’t been taken into consideration was she had such a great return on her superannuation. Her superannuation was doing better than the market doing. The financial adviser had said to her, “We want to try and not divide your super.” because she had more super than her husband. “We want to try and keep as much of that as we possibly can.” given her age and she was nearing retirement age. “We want to make sure that we keep all of that money if we can.” We went [00:15:00] back to him and his lawyer, we put together a whole new strategy. We said, “We want to keep the super so, therefore, we don’t want as big a cash component from him.” which he was happy to do. She came out of this in a much better position because we had a strategy behind her.
It’s really important to make sure when you’re negotiating your assets split, especially if you’ve got quite a few investment properties or shares or anything like that, that you do some due diligence, you get the advice from your accountant annual financial adviser and that’s the information that you provide to your lawyer. It’s not your lawyer’s job to tell you what you can and can’t keep and why. You need to be very, very clear on this because it can be the difference between a successful future or, in Karen’s case, if she signed those consent orders from the first lawyer, she would have been in a world of hurt and be in a very, very precarious situation.
So that’s it for this [00:16:00] podcast, but please make sure that you are fully aware of the consequences of your financial decisions. It’s not up to the lawyer. I can’t stress that enough. You need to make sure that you get the advice from the proper individual. All right, so I look forward to talking to you again next week. Bye for now.
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