If your relationship was also a casualty during Covid, it comes with an added sting. Photo / 123RF
Covid-19 has a long tail, but if your relationship was also a casualty, it comes with an added sting. Amanda Morrall explores the post-pandemic financial pain for divorcing couples and women.
If being unshackled from the proverbial ball and chain is something to celebrate, doing so at today's costs could have one slugging back budget beer on a park bench instead of bubbles on the dance floor.
After years of rock bottom interest rates, which inflated an already fat housing bubble and contributed to steroidal stock market prices, a post-pandemic hangover is hitting divorcing couples hard.
House prices in Aotearoa have slumped as much as 30 per cent on top of share market meltdowns to equal measure. If losing half one's wealth wasn't bad enough, there is a Covid premium of 10-30 per cent at current valuations, depending on your investment.
There's been a hopeful uptick in recent weeks, but the NZX50 alone remains -10 per cent down year on year.
Remember, it is not only fat cat CEOs and elites with eye-watering equity and property portfolios feeling the long-sting of Covid.
KiwiSaver also counts as relationship property, so those having to level out asset divisions could kiss goodbye to a portion of their currently diminished nest egg.
In the last quarter alone, KiwiSaver funds shed $4 billion in value, falling from $27.4b at the end of March to $23.2b by the end of June.
Losses will likely be temporary for those with equity exposure and time to wait for the markets to correct, so most KiwiSavers don't need to panic.
But time isn't on your side if you're in the throes of slicing up relationship property or if you're looking to raid your funds for your first home or retirement.
Those parting earlier than pledged in their sacred vow could experience significant financial pain, says financial planner Sheryl Sutherland of Financial Strategies Group in Christchurch.
Women may be especially hard hit, worries Sutherland.
For one, they tend to have lower earning power to redress their financial wounds.
That's compounded by the fact that women tend to have smaller savings and more conservative investments, which are usually lower yielding.
As "eternal caregivers," women tend to go for the safer, more conservative options, says Sutherland.
The consequence of doing that at a younger age is lower long-term savings.
One KiwiSaver provider tagged the long-term difference between a Conservative Fund and a Growth Fund at around $82,000 by retirement.
Being cautious and risk-averse can be an excellent survival strategy but not so much when it comes to optimising for long-term investment outcomes.
"Routinely find that once women have the 'risks' and returns clarified, selecting a higher growth portfolio is the best way forward," said Sutherland.
If you haven't looked at your KiwiSaver balance in some time - and you're not divorcing - it might be prudent to let sleeping dogs lie.
In the first year of Covid, ill-informed panicked investors saw red in their accounts and fled from higher returning funds to more conservative ones, not understanding it would cause them more longer-term pain once markets recovered.
They did back in 2021 and will likely again. We see evidence of that now, but if you believe the bear sentiment, we could be in store for a rough ride.
That's cold comfort for divorcing couples and those in common-law relationships.
The Property Relationship Act, which mandates a 50/50 division of assets, applies to married couples and those in a de facto relationship.
There are shades of grey about what constitutes a de facto relationship, but three years is the tipping point. If children are involved or one party introduces some money of consequence into the relationship, it may be less than three years.
The Act applies whether a relationship ends through separation - or death - and can override a deceased's partner's will.
If the relationship was shorter than three years, there is a lighter application of the rules.
According to the Law Society, in a shorter relationship, the property is generally divided based on contributions to the marriage or civil union, rather than shared equally where one spouse's contribution has been more significant than the other.
The unwinding and separation of assets is not usually a quick matter.
For those who have recently decided to break up but haven't bolted for the door, that could be good if the housing market recovers along with the sharemarkets in the coming months. For those signing off imminently on their asset separation agreements, it's another story. Oh, and don't forget the legal fees.
Sutherland said a cheaper option than expensive divorce lawyers and barristers is using a mediator to iron out an agreement. The success of this approach depends, to a large degree, on one's reasonableness, which most divorcees will know is in short supply during the fresh ugly aftermath of separation.
So if there are plenty of assets to carve up, and the vitriol is running high, it would be foolish not to use a lawyer to ensure you're coming out with more than the dog.
Women tend to fight for the house and full custody of the children, if there are any. It tends to be an emotional decision with the security of housing and continuity of care for the children top of mind.
Whether it makes financial sense is another matter.
In her book Girls Just Want to Have Fund$, Sutherland preaches four commandments for women:
She urges them to protect themselves and give up on the idea of a "white knight"; to anticipate disaster (so you're financially and emotionally equipped ahead of the game); to act on your best judgement (listen to friends, family and importantly your intuition); and finally to be strong.
"All too often, we are too soft; we nurture others at our own expense; emotional and financial. We worry about our children's education and our partner's state of mind. Toughen up! You can be gentle but adamant," writes Sutherland.
Taking over a mortgage as a single mum, with rising interest rates, cost of living etc may end up being more long-term punishing than just turning a new page and downsizing.
On the other hand, selling at a time when house prices have slumped could also be detrimental to both parties.
Sutherland recommends doing an asset tally, with current valuations to see how the numbers stack up and then formulate a plan.
Lawyer Samuel Ames, with Turner Hopkins in Auckland, says his top tip for couples hoping to avoid the pain, wrath and cost is to operate with some foresight. More specifically, he recommends a contracting out agreement.
"This is the best protection and "gold standard" in terms of keeping what is separate property out of the relationship property pool."
Ames said contracting out agreements can include trust assets, but "as the agreement is entirely customisable, it can include things like how relationship property is classified going forward and when the agreement should be reviewed."
Ames said a contracting out agreement tends to be more reliable than having a trust unless that trust has a history.
"If the trust has existed for a long time, it may be sufficient in the absence of a prenup, provided the parties have not benefited from or contributed to those assets."
Ames said recent changes to The Trust Act don't impact relationship property legislation in the case of separation or death of de facto couples.
He encourages couples to seek independent relationship property advice so they are eyes wide open about any fallout in the event of a breakdown.
While there are no hard dates for asset separation following divorce, Ames said procrastinating isn't usually in your best interest.
"There is no time limit but usually, the sooner, the better!"
The truth is harder to swallow in a downturn.
Directives for Coping After and During Divorce, from Girls Just Want to Have Fund$ by Sheryl Sutherland.
• Stash cash: After you divorce, you will need time to rebuild your financial resources, begin a rainy day fund.
• Separate money and emotion: Don't let money issues cloud your perspective. Chances are he'll have more money than you but accept your financial situation.
• Focus on finances: Make written plans; this is a perfect time to get a grip on your financial future.
• Get your career in gear: Assess your career opportunities, move ahead, study, take courses, and prepare a CV. Improve your working life and increase your income; remember, it will be yours now.
• Tie up loose ends: Have you made a will? If not, do so immediately. If you have, rewrite the portion relating to your beneficiaries. Review your retirement plan. If you haven't got one, put it on your list. Make sure your mortgage is the best
'We could end up with an extra $4b added to incomes.'