By David Thomson, 7 December 2020
David Thomson, Senior Legal Adviser at Sanlam Trust, says that the reality is that 40% of marriages end in divorce before their 10-year anniversary, according to Stats SA. “Four out of 10 of the 25 326 marriages in 2016 came to an end before the 10-year mark. Unfortunately, this shows how important it is that both partners are financially protected. It’s always advisable to involve a trusted financial planner and reputable lawyer in proceedings from the start.” Since lockdown started, a local legal firm has noted a 20% increase in divorce applications.
There’s lots to process emotionally, so professional help with the practical financial implications could make a big difference. “You have to consider the impact of divorce on the whole financial picture. In a partnership, one person may have taken responsibility for the finances, so following a divorce, sudden financial independence could be daunting for the other partner. Additionally, divorce might mean that one has to go back to work. Plus, it has potentially big consequences if there are children involved as arrangements must be made regarding payment of school fees; medical aid and the like.”
Thomson shares some considerations on dealing with the financial side of a split.
Firstly, if you’re entitled to a portion of your spouse’s retirement fund, consult a financial planner on how best to reinvest it for your retirement. Secondly, when balancing your immediate needs with your retirement savings, consider how to boost your retirement provisions. Often, following a divorce, there’s the need to redouble savings efforts to make up for any divorce settlement withdrawals and the opportunity cost of lost compound interest.
If you get divorced when you’re younger, you have time on your side, so you can potentially look to adopt a higher risk investment strategy as you can likely withstand more market volatility. This could help you gain back ground with your retirement savings. In older life this strategy could prove disastrous. Again, this is where a financial planner could prove invaluable.
If you go from having two incomes to one income, inevitably there’s going to be quite an adjustment. Be real about your circumstances and current expenses, then decide what changes you need to make. Take any new expenses into account, like childcare, for example. Adjust your budget accordingly, cull extra costs when possible, and consider ways to potentially earn extra income. Could it be time to start a savvy side hustle? Think about how to capitalise on your marketable skills.
You’ll probably need to revise your short-term, life and medical insurance policies. If you take out a new life policy, name new beneficiaries and remove your ex-spouse from old policies, should you wish to do so. Make sure that your children are covered by either your or your ex-spouse’s medical scheme or hospital plan. Maintenance payments should be increased according to annual inflation.
You get three month’s grace after a divorce, meaning that should you pass away during that time, it’ll be assumed you did not want your ex-spouse to be your heir. That means your estate will go to your children or next of kin. If you fail to change your will after three months, then your ex-spouse will stay your heir as prescribed in your last will and testament.
Enlist a professional to appraise all your assets in the current market value context. That way, you know whether to liquidate them or transfer them as intact assets to your ex-spouse, should this action be required either by your settlement agreement or by court divorce order. Consider, for example, whether you need to sell your family home and if it makes sense to do so in the current housing market. Make sure your divorce attorney ensures you receive all the business assets and retirement monies you’re entitled to. Have all the assets and benefits transferred as soon as possible to the rightful party to avoid complications.
Divorce is complicated, no matter who you are and how wealthy you may be. Be gentle with yourself, get the professional help you may need, and take it one step at a time. Whether you need to change jobs, move houses or make other big adjustments, go slow and make sure all decisions make sense with a greater financial picture in mind.