One of the thorniest aspects of divorce is its financial implications. David Thomson, Senior Legal Adviser at Sanlam Trust, says divorce is an extremely traumatic event on its own and financial considerations play a huge part. People should, therefore, make sure that they carefully consider the bigger picture when it comes to evaluating their financial situation and making decisions. If you get divorced and are legally entitled to a portion of your spouse’s retirement money, take care before you think of this money as a ‘windfall’ to spend. Instead, remember that it was initially intended to provide a comfortable retirement, he warns. It is so important to know that regardless of whether or not you have your own retirement savings, upon divorce you are entitled to claim against your ex spouse’s retirement funds. Likewise, your ex also has a claim against your portfolio. There is one exception: spouses married on or after 1 November 1984 out of community of property and without the accrual system will not be able to claim from each other’s funds. Therefore, educating oneself on this issue is imperative.
During the divorce process, make sure that you take a holistic approach to ensure you stay on track with your retirement savings goals. “Don’t try to guess what your retirement needs are going to be – get a professional financial adviser to calculate this for you,” says Thomson. When balancing your immediate needs with retirement savings, the other critical issue to consider when you get divorced is how to boost your retirement provision, especially if you intend to enter into a new relationship. Divorced people often have to redouble their savings efforts to make up for the divorce settlement withdrawals and the fact that they’ve missed out on the effect of compound interest, says Thomson.
It is critical to fully understand legislative requirements for pension funds, so you know what happens to your RA after divorce. When you take out a
retirement annuity (RA), the underlying policy belongs to the fund and not to you. So you cannot “give” the retirement annuity to your spouse in a divorce order. The current position in terms of the Divorce Act is: a pension fund is permitted to pay a portion or all of the “pension interest” to the member’s former spouse (referred to as the non-member spouse) if this is empowered by a properly-worded court order.