Key Takeaways

• Joint debts and undervalued assets can create hidden financial risks during separation.
• Unresolved settlements or rushed agreements may lead to long-term financial complications.
• Taking inventory of all assets and seeking professional advice ensures a fair and just division.

Introduction

Separation can be one of the most challenging events in a person’s life—emotionally, mentally, and financially. While many people are aware of the immediate changes, they often overlook the long-term financial impacts of a separation.

Joint debts, undervalued assets, and rushed settlements can lead to significant financial risks during separation - many of which aren’t obvious until it’s too late.

If you’ve recently gone through, are currently going through, or are even just considering a separation, you may be feeling overwhelmed by the financial complexities, and this is understandable.

The decisions you make now can and will have lasting consequences if they’re made without very careful consideration. 

The goal of this article is to help you navigate these hidden financial risks, ensuring you protect your financial future while achieving a fair and equitable division of your assets.

By understanding the potential pitfalls and how to avoid them, you’ll be able to approach your separation with confidence and make informed choices for both the short and long term. 

Let’s dive into the financial risks that may be costing you more than you realise and explore practical steps to secure your financial future.

 

The Hidden Financial Risks of Separation

When a relationship ends, there are often more financial considerations than most people expect. Naturally, the immediate focus is on the emotional and logistical side of separation—resolving parenting arrangements, finding new housing, and making a fresh start. 

While all of these are challenging in their own right, it’s the financial fallout that’s often underestimated and can have a long lasting impact.

 

Joint Debts and Shared Liabilities

One of the biggest hidden risks of separation is the continued responsibility for joint debts. Couples often share financial obligations such as: 

• mortgages,
• credit cards,
• personal loans,
• car loans,
• business loans, and more.

These shared financial commitments are part and parcel of many relationships, but what often comes as a surprise is that both parties may still be legally responsible for repaying these debts - even if one person is no longer living in the shared property or benefiting from the loaned funds.

For example, if both partners are listed on a mortgage, they may still both be liable for payments—even if only one party continues to live in the home. 

This can lead to significant financial strain if one person is unable to make payments or if the other is left shouldering the full debt. In some situations, there may be options available to the partner no longer living in the house, particularly if they can’t meet their share of the repayments. Options like this, while valuable, need to be explored early and with the right financial and legal advice, to avoid unnecessary pressure later on.

 

Undervalued Assets

While joint debts are one of the most commonly overlooked financial risks during separation, one of the most quietly underestimated areas is the value of assets.

Of course there are obvious assets like the family home that are usually considered in property settlements, but it tends to be the less tangible assets—such as superannuation, business interests, and investments—that are often overlooked or underappreciated.

A common example we see of this is when one partner has a significant superannuation account. While great for them, if it’s not included in the property settlement, the other partner may unknowingly be leaving a large sum of money on the table.

Similarly, assets such as:

• shares,
• digital or virtual currency,
• retirement accounts,
• or even collectibles, 

may not receive the attention they deserve, leading to an unequal division of property.

 

Rushed or Unresolved Settlements

All in all, joint debts and undervalued assets aside, the emotional turmoil following a separation can often lead people to settle quickly to put the situation behind them. It’s natural, most people by the point of separation are well and truly ready to start fresh.

However, rushing through financial decisions often leads to detrimental consequences in the long run. 
It’s these quick settlements that often overlook important financial considerations, leaving both parties with an unfair outcome.

For instance, agreeing to an asset split without fully understanding the value of those assets or potential future liabilities may seem like an easy solution. But these hasty decisions can create future problems, especially when new financial information or unexpected expenses arise, or even tax liabilities. 
You may find yourself having to revisit the settlement later, leading to unnecessary stress, legal battles, and even more financial costs.

In addition to this risk, leaving a settlement unresolved because it’s been sped through or not formalising any agreement reached can cause issues in the future for both parties.

It’s vital to understand that the assets, debts and financial resources will be valued as at the date the Court is dealing with them (i.e. at the time of formalising any agreement or at the time of a final hearing) and not the date of separation.

This means if you don’t resolve and formalise your property settlement, any assets you acquire post separation or debts accrued by your former partner might end up being included in the property pool when you formalise your property settlement.

 

Practical Steps to Avoid the Common Financial Risks of Separation

To avoid the hidden financial risks of separation and ensure a fair property settlement, there are several practical steps you can take. Let’s break them down:

 

1. Take a Comprehensive Inventory of All Assets and Debts

The first step is to take stock of everything—assets, superannuation, financial resources and liabilities. This includes the family home, vehicles, savings, superannuation, shares, and even things like art or collectibles. It’s crucial that both parties disclose all financial matters fully and honestly to ensure that nothing is overlooked.

 

2. Seek Legal and Other Advice

Don’t go it alone when dividing assets and settling financial matters. Consulting with a family lawyer and a financial advisor can help you understand your rights and obligations, as well as guide you through the complexities of property division. Professionals can also help identify overlooked assets and debts, preventing future financial disputes.

A lawyer can assist with negotiating fair terms and drafting legally binding agreements that protect your interests. Financial advisors can offer insight into the long-term impact of different settlement options, such as how splitting superannuation or real estate may affect your retirement savings.

There are other professionals that may need to be engaged throughout your property settlement, depending on your circumstances and these can include Valuers, Forensic Accountants etc. Your lawyer can advise you of any other professionals that may need to be engaged throughout your property settlement. 

3. Don’t Rush the Process or leave it unresolved

While it’s tempting to move on quickly, rushing through the separation process can be costly. Take your time to negotiate and ensure that the settlement is thorough and fair. If necessary, use mediation or negotiation to settle disputes amicably. A rushed decision today may lead to regret tomorrow.

It’s essential to think beyond the immediate financial impact. Consider how your settlement will affect your future lifestyle, including ongoing expenses, potential child support obligations, and long-term savings.

Further to this, some people may want to avoid the need to involve professionals as they want to reach agreement between themselves and not worry about formalising such agreement. While this may seem like an effective and efficient approach, if your agreement isn’t properly formalised, either person could bring an application in the future for a property adjustment.

It’s important to note as well that the Court is not required to make orders in line with any agreement reached between you both but not formalised. That means no matter how mutual the understanding was, the Court can still make a different decision based on what’s presented at the time.

 

Conclusion

Separation doesn’t just affect your personal life—it can also have a profound impact on your financial future. By understanding the financial risks of separation, such as joint debts, undervalued assets, and rushed agreements, you can take steps to protect your finances and ensure a just and equitable division of property.

Taking the time to evaluate your assets, seek professional advice, and carefully consider your long-term needs will help you make informed decisions that safeguard your future. While the process may seem daunting, remember that with the right guidance, you can navigate the financial complexities of separation and emerge in a stronger financial position.

For further assistance navigating the financial risks of separation, download our Property Settlement Guide today. Take control of your financial future and ensure that the separation process is just and equitable as well as manageable.