I've been wanting to draft articles on divorce for a long time but have hesitated, mostly out of nervousness around being taken out of context, or offending, or both. As I write this, I also know that many who read this know me as a divorced person and some who also knew me as a married person. That could be awkward too.

Divorce is a verb and one that has a rainbow of emotions attached to it.  Grief, shame, pain, relief, joy, excitement and fear all seem to blow about simultaneously in a kind of emotional weather bomb that takes some time to blow over (the time of which can be exacerbated by who did what to who, and when, and for how long, or said what to who, at that time, and away we go.)

Divorce is a loaded subject, and one that many of us are acutely aware of why. It needs to be handled delicately, but also openly talked about and addressed. Why? People need to move on, and they need a path forward. We get questions from clients who are divorcing or wanting to divorce all the time. Because sometimes despite our best intentions and all our expectations, divorce just happens.

One of my solicitor connections (who is also separated themselves) actually congratulates clients who ring her office to say, “I just wanted to let you know we are getting divorced.” Her reply? “That’s great news.” This solicitor recognises that the client has got to the end of their current marriage/ relationship because it is not working as it should, and now it is time to move to the next phase of life. (See my nervousness about writing stuff like this?) So in her mind, this is a time to be celebrated, and a congratulations is very much in order. I love her positive take on this.  

Divorce launches us into the unknown, towards the end of a promise, perhaps the end of pain or the beginning of pain, but also the beginning of what’s next. In our roles as financial advisers at Velocity, we field weekly questions from clients around the “what’s next” and how to live beyond separation with the money they currently have.  The aim of this blog is to start discussing and offering solutions to the challenges that come with starting this new life.  

One of the comments I have heard as an adviser many times is “We just can't afford to break up” (sometimes I wonder if the real question is, can you afford to stay together?) Then there is the “We are staying together for the kids” (which is a whole other different conversation for another time, so let's just focus on the money aspect.) To be honest, it is the kids that make it all a lot more complicated.  

If there are no kids involved however, then the separation of assets is as per your RPA (i.e., your Relationship Property Agreement, or pre-nup.) Get one, if you don’t have one already. Otherwise and especially if you own property together, you will likely need to arrange a separation agreement through a solicitor, which can take some time and negotiation between the two parties. This can rack up the bills pretty quick. So, get your partner on board while the times are good and protect each other with a pre-nup. You may find that this process actually enhances your trust and respect for one another!  

In terms of property, divorcing couples can choose many ways to deal with the house (s). Should they be kept and a second one brought, should they be sold? Can the mortgages be cleared, etc? In this instance, talking to a mortgage adviser is really good idea, especially at a time when your head is spinning enough already on its own.  

Here is a scenario. If you own a property jointly and want to keep it, one party needs to pay the other party out. The only way to do that is for the first party to apply for a new mortgage. The bank will assess the loan on your ability to borrow on your own (you may need to get a boarder or flatmate in to bolster your income and help pay the mortgage) and if you have enough equity after you pay what you need to pay out, then you are away.  

But keep your expectations in check. With your equity potentially halved, and incomes split, you may need to be a little more pragmatic about what your options are for housing.  

Example: If you have a home worth one million dollars and you have a $600,000 mortgage, this leaves you with a $400,000 equity. Once divided as per your separation agreement (let’s say it is a straight 50/50) then this leaves you with $200,000 each to walk away with. You now have $200k to purchase a $1,000,000 property, which works from a LVR perspective (Loan to value*), but you may not have the income to afford the $800,000 mortgage (even with flatmates).  

What do you do? You become pragmatic, you recognise that this is a point in time, and you buy what you can afford and make it work. OR, if you are feeling wild, run away and join the circus. Buy the caravan. Do the travel. Just leave some of that money aside to invest in something.  

Do make that time to talk to an adviser for some independent advice. As well as the family and friends you need around you for the emotional first aid, so too you need professionals for the financial, legal etc first aid as well.  

Pop in for a coffee sometime. Make an appointment with us here if you want to chat.

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Graham.
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Graham Goodisson (FSP95428) is a Financial Adviser with Velocity Financial (FSP95466). No investment decision should be taken based on the information in this blog alone. Please see Graham’s disclosure statement on our website.

About Graham

Hi there, I’m Graham and I started Velocity Financial nearly 20 years ago. I had for many years been running youth development programmes for The Salvation Army and I liked the idea of continuing to help people thrive in other areas of their lives. It started with helping first home buyers, and I now work mostly with business owners. This is around planning, lending, and managing risk for them and their staff. I’m passionate about community and connecting those in need with opportunity. I’ve been very privileged to do this in my previous career, now in my business and also for 20 years as a Trustee of the Te Aro Health Clinic. Our clinic delivers high quality health care for Wellington's most vulnerable and I'm very proud of the fact that Te Aro is now an integral part of Wellington City Health system. I work in New Zealand's two best cities, Tauranga and Wellington. In Tauranga I swim, bike and run (maybe YOGA if I'm feeling particularly aware!) and in Wellington I mostly seem to buy my adult children dinner and drinks.

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