A divorce financial checklist is vital to ensure that you have accounted for all your financial assets and liabilities. This comprehensive list helps achieve a fair and equitable settlement, protects financial rights, and adequately prepares you for post-divorce financial responsibilities.
This guide is designed to shed light on this vital instrument, assisting individuals in safeguarding their financial health as they transition to a new chapter in life.
Important Items on Divorce Financial Checklist
Divorces can be emotionally draining, but ensuring that financial matters are sorted prudently is essential. Here’s a comprehensive divorce financial checklist tailored for Australia:
Gather Financial Documentation:
- Tax returns for the past 3-5 years
- Recent payslips
- Bank statements
- Investment accounts
- Superannuation statements
- Property deeds and mortgage statements
- List of all assets (jointly and individually held)
- Current market valuation of properties
- Valuation of other significant assets (e.g., vehicles, jewellery, art)
- Identify all joint and individual debts
- Current mortgage balances
- Personal loans, car loans, and credit card debts
Child Support and Expenses:
- Estimated costs for childcare, education, medical, and extracurricular activities
- An understanding of the child support laws and obligations in Australia
- Determine if either spouse is eligible
- Document monthly expenses to establish financial need
- Life insurance policies
- Health insurance coverage
- Income protection or disability insurance
- Understand the legal provisions around super-splitting
- Evaluate the current balance and future growth potential
- Update your will
- Reassess powers of attorney and beneficiaries on insurance and superannuation
- If either spouse has a business, get an evaluation
- Understand the implications of the divorce on business ownership and debts
- Budget for post-divorce life, including housing, utilities, and daily living costs
- Budget for attorney fees, mediation costs, court fees, and other related expenses
Social Security and Benefits:
- Understand how divorce might affect any Centrelink benefits you’re receiving or are eligible for
- Consideration of capital gains tax, especially when selling or transferring assets
- Splitting of tax refunds or liabilities
Closure of Joint Accounts:
- Close or separate joint bank accounts, credit cards, and utilities
- Consider consulting with a financial planner or advisor familiar with Australian divorce laws to navigate the complexities.
Every divorce situation is unique, so some items may not apply to everyone. Seek guidance from a legal and financial professional to ensure all bases are covered.
Do I Need to Consider Debts and Liabilities?
Absolutely. Debts and liabilities play a critical role in the financial aspect of a divorce. They can significantly influence the division of assets and financial settlements. Here’s why and how you should consider them:
- Equitable Division: Assets aren’t the only things divided in a divorce; debts are also shared. Whether you’re in a community property jurisdiction or one that employs equitable distribution, how you split debts will be determined either by agreement or court order.
- Joint Debts: Many couples have joint debts such as mortgages, car loans, and credit cards. Both parties are typically responsible for these. If one party fails to pay, creditors could pursue the other party for the entire amount owed.
- Individual Debts: Debts incurred before the marriage are usually considered individual debts and remain the responsibility of the party that incurred them. However, any debt acquired after the wedding, even if only in one person’s name, might be considered a joint liability, depending on jurisdiction and circumstances.
- Mortgage Considerations: If a property is to be retained by one party, but the mortgage is in both names, the retaining party may need to refinance the loan to remove the other’s liability.
- Credit Impact: Outstanding joint debts can affect both parties’ credit scores. If one party defaults, misses payments, or files for bankruptcy, both parties’ credit ratings might suffer.
- Secured Debts: For debts secured by property (like a car loan), the party who retains the asset usually assumes the debt. It’s essential to ensure the lender recognizes this change to prevent issues if the debt isn’t paid.
- Tax Liabilities: If you’ve filed joint tax returns during the marriage, both parties might be responsible for any tax liabilities, penalties, or interest. Ensure any owed taxes or potential liabilities are addressed in the divorce agreement.
- Business Debts: If one or both parties own a business, there may be business-related debts to consider. These might need to be divided or allocated based on the business’s valuation and each party’s involvement.
How Do Tax Implications Fit into the Divorce Financial Checklist?
Tax implications during a divorce can be nuanced and might greatly impact both parties’ financial futures. Here’s a deeper dive into how tax considerations intertwine with divorce financial proceedings:
- Asset Transfers:
- Capital Gains Tax (CGT): In Australia, the transfer of assets between spouses due to a divorce might be subject to CGT. However, certain rollover reliefs available can defer the CGT event to a later time.
- Family Home: The transfer of a family home (main residence) can also have CGT implications, especially if one party continues to live in it after the separation or has been used to produce income.
- Alimony (Spousal Maintenance in Australia): Unlike in some countries, spousal maintenance payments in Australia are not tax-deductible for the payer and are not treated as taxable income for the recipient. However, ensuring these payments are correctly categorized is important to avoid unnecessary tax implications.
- Child Support: Child support payments are neither deductible for the payer nor treated as income for the recipient. This contrasts with spousal maintenance, so clearly distinguishing between the two in any agreements or documentation is essential.
- Splitting of Superannuation: Superannuation splitting laws allow super interests to be split between parties when a relationship breaks down. While the immediate transfer might not be taxable, it’s crucial to consider the eventual tax implications when the super is accessed in retirement.
- Tax Debts and Refunds: If one partner has outstanding tax debts, the Australian Taxation Office (ATO) can pursue the other partner for payment under joint liability provisions, especially if you’ve previously filed jointly. Also, deciding on its division becomes crucial if there’s a tax refund due from previous joint returns.
- Change in Filing Status: Your tax filing status will change after divorce. This can impact tax rates, deductions, and credits. It’s essential to be aware of this when planning post-divorce finances.
- Legal Expenses: Some legal expenses related to seeking financial advice about the tax implications of divorce may be tax-deductible. It’s wise to consult with a tax professional about potential deductions.
- Income Streams: Understand how the receipt of certain assets (like rental properties or dividends from shares) will impact your taxable income post-divorce.
- Joint Investments: Consider tax implications when dividing or selling jointly held investments. Understanding who will be liable for future taxes on investments, such as dividends or capital gains, is essential.
- Future Liabilities: If any tax liabilities might arise from assets or investments acquired during the marriage, it’s crucial to address this in the divorce agreement.
Personal Valuables and Collectibles
Items like jewellery, art pieces, and collectibles can have financial and sentimental value. Document all these items and decide on their distribution. If disagreements arise, consider a professional valuation.
Should I Be Concerned About Future Earnings and Potential Inheritances?
Unless agreed upon (like spousal support), future earnings are typically personal. However, potential inheritances might be considered if they played a role in the marriage’s lifestyle. Legal guidance is essential in this grey area.
In today’s digital age, assets are not just physical. Ensure you account for shared digital assets, such as website earnings, royalties from digital products, or cryptocurrencies. The division of these assets can vary based on their nature and the agreements in place.
Financial Advice for Divorce Settlement
Securing a fair divorce settlement isn’t just about listing assets and debts; it requires strategic planning. Here are some invaluable tips to ensure you’re on the right track:
- Hire Professionals: While it might seem costly, employing the services of financial advisors, divorce lawyers, and accountants can prove invaluable. They can guide you through complex financial terrains and help secure a better settlement.
- Document Everything: Keep a detailed record of all financial transactions, communications, and agreements. This documentation can be crucial when disputes arise.
- Update Beneficiaries: Post-divorce, update beneficiaries on insurance policies, wills, and superannuation funds to reflect your current wishes.
- Reassess Your Budget: Post-separation life might come with different financial responsibilities. Draft a new budget considering your new income, expenses, and financial goals.
- Stay Informed: Ensure you know all financial decisions made during the divorce process. Even if you trust your advisors, it’s your future at stake.
Facing the Challenges of Divorce and Unsure about Your Financial Rights?
Your assets and financial security are paramount. Trust the expertise of Justice Family Lawyers to guide you through every step, ensuring a fair and secure financial outcome. Contact us today for a comprehensive divorce financial checklist and dedicated support tailored to your unique situation.
Principal of Justice Family Lawyers, Hayder specialises in complex parenting and property family law matters. He is based in Sydney and holds a Bachelor of Law and Bachelor of Communications from UTS.