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5 divorce mistakes that will cost you the most money from someone who knows better

'Keeping it fair' is the secret to a successful, and amicable, divorce.

Divorce is a draining and lengthy process but, with the right negotiation approach and financial strategies, you can emerge stronger and economically secure.

It all hinges on avoiding the expensive pitfalls. Here are five mistakes you must avoid at all costs.

This is the second part of a two-part series on navigating divorce, based on Nicole’s recent lived experience. You can read how she kept the total cost of her divorce to just $4,895 here.

Divorced woman Nicole smiling in front of a red wall.
Divorce is tricky on a number of fronts, but Nicole has been through it and said Australia's 'no-fault' system, which means the reason has no influence over the division of assets. (Source: Nicole Pedersen-McKinnon/Getty)

Mistake 1: Not understanding the financial situation

Everyone needs to get a fair share, and the best way to do that is by looking after each other. This will help to keep a divorce amicable and preserve assets for yourselves. The alternative is sharing them with lawyers.


But, to get a fair share, you have to know what’s there. You need a clear picture of the partnership’s assets, debts, and income, which (it may come as a surprise) includes those that are in single names as well as joint, potentially even if bought before the union. Both parties are required to disclose everything.

Though they call it a ‘property’ settlement, assets on the table include far more than just the family home – think super, shares, vehicles, any cash or savings, and even jewellery, furniture and electricals. Of course, debts are in there too – absolutely anything anyone owes.

Mistake 2: Refusing mediation or arbitration

Up front, wrap your head around the fact that – and I’m sorry if it sounds harsh – no one cares about the reasons for your divorce or separation. It has no bearing on who gets what.

Australia has a no-fault divorce system so, as hard as it is, you need to put history aside. Whatever led you to break up is not relevant to the division of assets (or the custody of any kids – if you let a judge decide, rather than coming to a personal agreement, he/she will do so based on what's deemed best for the children).

Also by Nicole Pedersen-McKinnon:

As I said earlier, the best way for both of you to keep the most assets is to focus on fairness. Fighting usually leads to less money all around.

If you do decide to go to court, there are two overriding fairness factors in the asset split:

  1. The respective contributions (not just financial but caring for kids) during a partnership

  2. The future earning powers after it - the stay-at-home carer may now have diminished earning power because of time out of the workforce and so may be entitled to more than 50 per cent

If you cannot agree on the split between yourselves, however, mediation and arbitration are alternatives to the costly option of going to court.

Mistake 3: Overlooking tax implications

Not many people realise that you can split assets before getting divorced.

You might need to wait a year after separation before filing a divorce application but the asset splitting can happen anytime after separation, as long as it’s within the first year of getting divorced (if you were de facto, you have an extra year).

When this is via a court order or binding financial agreement, a transfer of assets to the other party can be exempt from capital gains tax under rollover relief (the tax will be payable later). 'Open market' asset sales would ordinarily be subject to tax, bar the exempt family home if it is the principal place of residence. It is well worth getting financial advice to make sure you don’t accidentally incur a big tax bill.

Don’t forget either that any tax bill may not hit until after the assets are sold. but also realise that the Australian Taxation Office is the country’s biggest creditor and should allow you to go on a repayment plan (although its current, punishing interest rate is north of 10 per cent).

Just be aware that capital gains from the sale of joint assets, in the situation where you forgo all proceeds to your ex as part of the settlement, could also cut you out of all family tax benefits for the next year.

And if one person gets the house but no ‘liquid’ or spendable assets, they may struggle to pay for things until they get up to earning speed. If another gets all the super, the same will be true and they’ll have rent or a new mortgage to pay.

Make sure you consider what the day-to-day expenses will look like for you both afterwards and carefully check your chances of initially being left with drastically squeezed income and no government support.

And looking further ahead…

Mistake 4: Ignoring long-term financial planning

Insurance policies need to be immediately amended so your ex is no longer eligible to receive the proceeds.

With super, it’s doubly important to complete a new binding death nomination because a former partner will not be exempt from tax if you die and this pays out – but any still-dependent children will be.

Divorce voids wills, so you will need a new one.

Mistake 5: Underestimating legal and other costs

Try not to underestimate how much it will cost to set both people up equally in a home. It is expensive to start from scratch again. But, from personal experience, again, fairness promotes a better financial future for you both.

Bear in mind that legal fees (if you incur them) can add up quickly during divorce. But we managed to keep our total divorce cost - aside from a tax bill on asset sales - to $4,895 each.

How to recover financially and personally

Whether married, divorced or headed that way, the key to everyone emerging well is to look after yourself - to put yourself first.

This is my template to make sure you and your loved ones will be OK, come what may.

Follow it pre-separation or use it as your blueprint to repair and rebuild your finances post-divorce, for a better future.

Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available Follow Nicole on Facebook, Twitter and Instagram.

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