Divorce is expensive. For many it is also unexpected, drawn out and uncertain. In almost all cases it involves the sale and division of assets – wealth jointly accumulated as part of a shared financial plan.
Research analysed by the Australian Institute of Family Studies shows that the most common financial assets to be sold or split in the event of divorce are cash (~81%), residential property (~77%) and superannuation (~81%)1. Investments (~22%) and businesses / farms (~24%) were also represented in the data and most likely involve either higher net worth couples 2 or those who separated later in life.
Where a matrimonial asset pool involving multiple assets has to be sold down there can be no guarantee that sale proceeds will be realised in either a timely or proximate fashion. The consequence – monies received from one sale may need to be kept in cash until all other sales are completed and a final agreement on their division is reached. Often, the receipt of a cash divorce settlement can be almost as overwhelming as the divorce itself - particularly where the divorcee is not used to managing money and making financial decisions.
Indeed, rebuilding an asset base may take quite some time and may, for those still working, be harder to achieve with potentially half the income that used to be coming in. Moreover, from an emotional perspective, balancing the practicalities of adjusting to a ‘new normal’ against the emotional impulses and well intentioned (albeit potentially misguided) advice from friends and family is not easy and will take time.
So what are the implications from a portfolio construction perspective and how could one make best use of the cash?
Whilst there is no “one size fits all” solution, being back on the market for the first time in many years (for investments of course!) means that there is a strong case for taking your time, looking around and keeping your options open. Bonus points for those who can do all of this whilst reducing the amount of complexity in their lives along the way.
Because if nothing else, you don’t want to go from the fry pan back into the fire.
Yet this is what many people do when it comes to managing their portfolios, particularly as it relates to cash. It is estimated that Australian investors lose nearly ~$4 billion in interest every year and, as recent industry surveys have shown, some investors are even getting negative post fee returns on their cash!
But it doesn’t have to be this way.
According to Rob Hay, Head of Advised Distribution at Cashwerkz, “many people are beginning to take a proactive approach to term deposit investing, leveraging technology to get ahead of the game and overcome the traditional pain points when placing term deposits”.
Clearly, with interest rate spreads of up to ~80bps for term deposit rates of twelve months or less, and with the ability to securely transact in as little as three clicks of a mouse, there are definite benefits up for grabs.
“When viewed in the context of the ongoing presence of the Federal Government’s deposit guarantee combined with the application of innovative technology solutions there has never been a better time to open up the market for term deposits and hand back genuine power to the consumer" Hay concludes.
So for those people who have gone through, or are going through, a material life event such as divorce, it can pay to think outside the box and look for ways to use technology in order to deliver better outcomes for the cash component of their portfolio – providing a better chance to rebuild wealth with greater confidence and less complexity.