Tuesday, July 11, 2017

Starting again...(takes a deep breath)

Alright, my divorced brethren...gather around. It's time to talk about starting again. Now, I know you're skittish, I know you've been through some pretty rough times, and that you're a bit shy on the idea of commitment. Especially after you've met someone who may *crosses fingers* have potential. So...what now?

Well, lets break this down a bit. This article assumes that you have identified a potential "candidate", and that they feel the same way. This is not a dating guide, but more of a discussion on the practicalities of partnering up post-divorce. Once the dust settles, and you have healed your lacerated heart, you come to the realisation that this time around, you actually have more to lose. You are no longer the dewy eyed naivete of your youth, but you also don't want to end up bitter and twisted.

I am here to reassure you that this time, it can be different. For starters, you are older, and (hopefully) wiser. You've taken the time to reflect, and your communication skills are surely much better than they were ten years ago. So, let's start the conversation about finances early on. This is not being callous, it is being honest. It is sharing ideas about what your expectations are going forward. After all, as put best by William Shakespeare, expectations are the root of all heartache, so lets manage them.

Firstly, be honest with your level of debt. You owe yourself this. If you are honest, then hopefully they will be as well. You need to know what you are getting into, and so do they. It might not be a deal breaker, it might just extend the timeline until co-habitation, or perhaps it might mean that you don't share finances...ever. You need to trust me on this; nothing will kill a relationship quicker than financial stress.

Talk about your children. What are your hopes and dreams for them. Is private schooling important to you? If so, is your ex-partner willing to contribute. What about your new partner's children? Is it important for everyone to go to the same school? What about funding University expenses, how long should they live at home for, child support etc? And importantly, do you want more?

His house or hers? Where will you live? Keep in mind that, in most cases, you are trying to merge two families, with their own habits and traditions, into one. Is there enough room for everyone to have their own space, or would you prefer to continue to run two, separate, households?

Expenses and income. This one is tricky. I have seen many different methods of working this out, and, in my experience, the first thing to do is work out what you consider "household" expenses. For example, electricity is an obvious household expense, but what about the mortgage? If it is owned by one partner, then perhaps not, as they will benefit from the capital gain. But if you purchase the property together, then yes, it would be considered a household expense.

Now that you have the expenses sorted (isn't budgeting fun!), you need to work out your post-tax income. If you are sharing the child expenses, then add in any child support being received, as well as any social security benefits. If one partner is paying child support, then this amount should be taken off their net pay. Now, you can work out the proportion of expenses to be paid, based on the proportion of income you bring in.

Example:
Adam and Betty are considering co-habitation. They have worked out their joint household expenses will be $1,000 per week. Adam earns $100,000 pa, and Betty earns $50,000 pa, as well as receiving $5,200 pa in child support. Betty will lose her social security benefits once they move in together, so this is not counted.

This will put the net household income at $119,711, with Adam earning 61% ($73,368 after tax), and Betty earning 39% ($46,343 after tax, including child support). This means that Adam's contribution to their joint "household" account at $610 per week, and Betty's at $390.

Using a proportional system will mean that both partner's will maintain some financial independence to pursue their own financial and lifestyle goals. In this case, Adam and Betty both retain approx. 56% of their income - Adam at $800 per week, and Betty at $501 per week. If the household expenses were divided 50:50, then Adam would be left with 64% of his income ($910 per week), but poor old Betty would only have 44% of her income ($391 per week). Great for Adam, but not exactly the best way to start a partnership.
This exercise is a great way to determine what your future life together would look like. There is nothing like trying to put a hypothetical household budget together to determine if your lifestyle expectations are compatible.

Now, that we've done the fun part, lets make it legal, people! No, I'm not advocating remarriage. I am insisting that once you are happy with the who has what, and who contributes to what, get yourselves down to a legal professional so that you formalise who gets what. Talking about the unspeakable (that it might not work), is easier when everything is still rainbows and butterflies, than if it actually happens.

And that folks, is why the second time around can be different. You've both been through it once, neither wants to go through it again, and having the conversation too early has much more appeal than having it too late.

Find Erin* at Achieveit Financial Planning, or call for an appointment on 07 4638 5011.
*Authorised Representative of Securitor Financial Group Ltd ABN 48 009 189 495 AFSL 240687

This is general information only and does not consider your personal circumstances. You should not act on any recommendation without obtaining professional advice specific to your circumstances. We recommend you speak to a financial adviser before acting on any of the information you read on this website.

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