How to maintain the best investments out of your divorce to secure your future by Tanya Somerton
Let me introduce you to Michelle.
Michelle and her husband of 28 years have separated and have just settled on their financial agreement after dividing their investments. If you have read my book The Jelly Bean Jar, you would know l break divorces into three categories: A Your decision, B Partner’s decision, C Joint decision. Each of these categories has different connotations for the partners, involved, and that is why ‘no two divorces are the same.’ Depending on the class you fall into will depend on your emotional state. How long it takes to recover, and ultimately the team of professionals l engage to best deal with your circumstances. Ultimately this team with help to achieve your seamless outcome from your divorce journey.
Now getting back to Michelle, she falls into category B. Michelle had no idea, her husband was unhappy. She was ill-prepared for the disaster her life was to become when he asked her for a divorce. The couple had worked hard all their life and had two adult children. Together they had acquired a property portfolio of four investment properties around Australia and owned their own home. They both have substantial superannuation and if they had stayed together retirement was only a few short years away. Feeling frantic about her future Michelle, found out some months later her husband had a new partner. The ex-husband remained in the family home, and she moved out and was renting a two bedroom unit. Her hopes, dreams, and wishes for an enjoyable retirement out the window in four word….I want a divorce. Not to mention the reality of being alone and scared about what her future holds.
Michelle had been referred to a lawyer, by a fellow work colleague.
The lawyer had done a good job for the co-worker’s sister. Now here lays the problem, ‘no two divorces are the same’. And a lawyer could do a great job for someone else but not be the lawyer for you. My category system alone highlights this discrepancy. So off Michelle went and worked with the lawyer for some months. They collaborating on what Michelle thought was the best possible outcome for her financial situation and racking up a bill into the tens of thousands. But wait, this lawyer had no idea about investment properties, capital growth, taxes, mining areas and the list goes on. The lawyer just knew about the law.
Throughout their marriage, Michelle had let her husband make all the investments. What property they purchased and where, how the mortgages were structured and so on. When it comes to negotiating for your future having insufficient knowledge of your circumstances and structures, due diligence is paramount. Michelle’s lawyer certainly had no appreciation; she didn’t even own any properties herself, how possibly could this outcome be beneficial? To the lawyer, it was just a numbers game.
In steps TLC Investment Group, my mortgage broking company. When l first met Michelle, she was looking to refinance two of her investment properties as part of her separation. Lucky for her, as a property investor myself, I highlighted straight away something was desperately wrong. The agreed split of assets was unfair. The husband wanted to keep the family home and two of the investment properties. Michelle was to receive the other two properties and her superannuation policy.
If your lawyer has no idea, they rely on their client ( being Michelle) to help guide the division of assets and agree on what they think to be right. This is where a team of experts on your side is critical to your success, a team you can trust and who are the subject matter experts. In this instance, Michelle had not taken into consideration that one of the properties she was about to acquire was in a mining town. Or that the mortgage on the property nearly three times its value. BOOM! Her future borrowing power not to mention the meager income the property was generating could ruin her future.
Michelle ultimate hired my company Tanya Somerton Divorce Angel, and we got to work reviewing the assets and the superannuation of both parties. We completely renegotiated the financial settlement much to the distaste of the ex-husband who thought he had just gotten away with a massive coup.
Couples Joint Assets
Husbands super: Value $425,000.00
Wifes super: Value $525,000.00
PPOR: Value $650,000.00
#1 Investment: Value $450,000.00 Mortgage $250,000.00
Investment #2: Value $185,000.00 Mortgage $365,000.00
#3 Investment: Value $395,000.00 Mortgage $200,000.00
Investment #4: Value $590,000.00 Mortgage $225,000.00
Total Value:$3,220,000.00 Debt: $640,000.00
Total value of assets: $2,580,000.00
The economic chaos, the husband, would have left Michelle with, would have her working well into her late sixties, while he skipped off with his new partner. Looking above you can see that by dividing the assets by half, the couple would both receive roughly $1.25 Million each. But the first lawyer had not taken into consideration the adverse effects property #2 would have on Michelle’s future, the changes in land tax laws and costs associated. Michelle would also need to use funds as a deposit for a new home, and a possible loan, otherwise she would continue renting.
Everyone must have a property strategy, and as an investor myself, paying down the debt to ultimately live off the income is fantastic. That is of course if the assets held are in good order and the returns worthy of the risk. In Michelle’s case, their property portfolio was a mixed bag, of good, average and bad assets. And the ex-husband was trying to hand off the bad.
Michelle now owns only one of the properties the couple had in their portfolio. Why might you ask? After reviewing the couple’s assets and liabilities, my financial angel highlighted that the super policy Michelle was in was returning above average. The fund was excellent and the penalties and fees low. When we reviewed the portfolio, it was clear that both parties needed to hold onto the property in the mining town as a dual risk. The couple would sell another profitable investment home to pay down the debt in the mining town property and offset the capital gains. Leaving the other properties for the husband if he so wished. The reason we didnâ€™t want our client to keep any of the remaining properties, had to do with her wanting to leave the workforce within the next ten years, if not sooner and if we could build up her super, she would be able to survive comfortably.
Divorce Angel’s Asset split:
- Together the couple needs to hold on to investment #2 until it is sold. This way both are responsible for the risk and if the property is sold and a loss is made that figure comes out of both asset pools or the sale of one of the other assets. It also meant that it was in both their interest to work together and come up with a positive outcome.
- The property with the most equity (Property #4) would be sold to pay out the debt in the mining town property. ( Best case wiping both properties off the asset register).
- Currently, Michelle is renting a unit, and with the transfer of land being 50% of its value in a divorce as of July 17, an additional fee is involved. We recommended Michelle live in one of the properties. This way the land transfer is not required as the house would be her Primary place of residence. In the current lending environment, it also meant a cheaper interest rate on her loan of up to 1 percent. Michelle decided that property #1 would be preferable. We have now refinanced this property, and it will become her home until she decides what is best for her future.
- It was critical not to touch Michelle’s super as the balance, and the fund had excellent returns, so overall this was paramount.
- The husband can keep the family home and asset #3 if he so wishes, as that was what he wanted originally.
- Michelle is now entitled to a cash payout from the husband or a part super transfer of $545,000.00
All of a sudden Michelle’s future has turned around. She took control of her finances by being part of the decision-making process and understanding why the first offer was detrimental to her future. She relinquished the underperforming assets in her portfolio and now has the security of a place to live into her old age. Her super balance will get an injection of funds and some cash in the bank. She feels empowered because she no longer feels like her husband can walk over her. His attitude has also changed as he realizes, she can no longer be fooled.
My team of Angels is nothing short of amazing and the best in the business. If you are looking at traveling through the divorce juggernaut, make sure you have the finest experts on your team. One mistake and you could find yourself having worked all your life and not benefiting.
So did Michelle have a seamless experience? I have asked her that question and having dealt with a previous lawyer she realises the importance of a trusted team of advisors. My step by step process and a team of professional provided her with a level of security and a tribe of women she could rely on 100% to uphold her best interests. Considering her wishes and knowing my client, l am pleased with her outcome, and she tells me often, that if l hadn’t come into her life, she would be financially overwhelmed. She now has a plan for her life, financial security and a smile on her face knowing she doesn’t need a husband to make her happy, she is quite capable of doing that herself. She is even considering buying an investment property herself. From her perspective, seamless it was!
Michelle’s future looks bright, and she continually reiterates how we are certainly her Army of Angels.
Written by Tanya Somerton
Tanya Somerton is a divorce angel, whose business is to help women through divorce and separation with the aid of her’Army of Angels.’ Tanya has a ‘One stop divorce shop’ helping empower women to move on both emotional and financially and to live an independent and productive life. Her divorce model: 6 Steps to a Seamless Divorce, will limit legal cost, saving you money and teaching you how to become financially empowered, no matter what your financial position.
She is also the author of The Jelly Bean Jar – Empowering independence through Divorce. If you are looking to prevent any mistakes and save money this book is a must. Purchase your copy http://tanyasomerton.com/shop/the-jelly-bean-jar/