Divorce can be one of the most emotionally and financially devasting life experiences. Luthando Mzilikazi, Sales Manager at Ninety One, explores this sensitive topic with Christel du Toit, Managing Director and Wealth Manager at Finsmart Asset Management. Christel is the author of the book: Divorce Smart and provides insight into navigating this difficult transition.
All couples get married with ‘’happily ever after’’ in mind. Sadly, according to Statistics South Africa, one in five marriages end in divorce as at the end of 2018. Even more concerning, is that 55% of the marriages that end in divorce involve a child younger than 18 years of age. This means that the divorce leaves behind a trail of significant changes to both spouses’ financial position, in addition to that of the minor child(ren).
Divorce is life altering. Not only from an emotional perspective, but financially too. Since women are typically paid less, and are more likely to become the stay-at-home spouse, women tend to be more affected by the separation and yet, divorce remains one of the least spoken about financial events. We hope to help women navigate the financial disruption of divorce and improve their chances of reaching financial success thereafter.
After speaking to women who have been through the process themselves, we have identified the six key considerations to work through as you prepare to live a single-headed income household:
1. Scrutinize the marriage contract
One of the first documents the appointed attorney, or the Magistrate Court clerk if an attorney is not appointed, will ask to see is the original marriage contract, the children’s birth certificates and proof of residence.
The most important document pertaining to the financial impact of dissolving the marriage is the marriage contract. The attorney needs this contract as it affects the outcomes relating to the distribution of the relevant assets. As important as this document is, couples often aren’t sure how they are married because they were more focused on the logistics of the wedding day, or they were married by the South African Customary Marriage Act (at the inception of lobola agreement, Muslim and Hindu marriages etc.) and were therefore married in the absence of an actual marriage contract. An attorney’s point of departure would be to explain the options available to you and the next steps in the divorce process based on the details contained in your contract, if such a contract exists.
A couple married without a contract based on either a civil marriage, a customary marriage, which includes a marriage off the back of a lobola agreement after 15 November 2000, or a civil union, is most likely married in community of property. This means that all assets are to be distributed 50/50, including inherited assets, or assets purchased using money sourced from an inheritance. If an antenuptial agreement exists, the couple is married out of community of property with accrual, meaning they share in the value of assets obtained after the wedding date 50/50, or they are married out of community of property without accrual, which means the assets will not be split equally at the dissolution of the marriage contract. Understanding the implications of how the marriage was incepted is crucial as it would save both parties time and money. Consequently, an original copy of the marriage certificate is required to start this process.
2. Decide how the divorce proceedings will be conducted
Often spouses are discouraged from launching divorce proceedings due to the legal costs involved. To this end, it is important to consider who can help with the process given one’s current and future financial position.
- The Magistrate’s Court closest to your residential or work address can offer this service free of charge.
- Online divorce services are the most affordable and quickest approaches to skip the long queues at the Magistrate’s Court. This works well for marriages that were for a short duration, or marriages under the out of community of property marriage agreement or where both spouses agree with the terms of the divorce.
- Attorneys in private practice who offer the service are also able to assist at a fee. The fees are calculated based on several factors:
- Whether the attorney is a specialist divorce lawyer or a general family lawyer,
- The attorney’s experience,
- And the duration of the divorce.
3. Record and keep proof of your monthly expenses
This is the step that frightens most women as one of the advantages of being married is the benefit of shared household expenses. If you plan to separate from your spouse, then keeping abreast of your monthly expenses is essential as you prepare for a single-headed income household.
Understanding if there will be a shortfall between your single income stream versus expenses and the amount of the shortfall will help an attorney request a maintenance amount that can help bridge the gap. Since the ex-spouse will most likely ask for proof of these expenses, being proactive and keeping proof of payments will assist in this regard. All expenses related to children should be documented separately from the household expenses as it will be handled accordingly.
This step is even more important if there is a possibility that the ex-spouse may not pay any spousal or child maintenance during and after the divorce proceedings, as it helps to separate wasteful expenses from essential ones.
In post-divorce scenarios, the wife often ends up with the matrimonial home and maintenance that affords their pre-divorce lifestyle. However, this not a regular occurrence for the average South African couple headed for separation. To understand why, let’s look at the considerations for maintenance in two separate parts: spousal maintenance and child maintenance.
Spousal maintenance is not an automatic benefit that all divorcing wives have a right to. The same applies to spouses who have been stay-at-home spouses. Whether this spouse would be granted spousal maintenance depends on the length of the marriage, how long they were unemployed for, their current age, whether they could go back to work or study, and of course, the income of the spouse that would be making this payment versus their own expenses. The longer the marriage, the longer the time spent as a stay-at-home spouse and the older the spouse, the higher the probability of them being granted a spousal maintenance depending on the affordability for the spouse that would be making these payments.
Child maintenance automatically applies when there is a child born of the marriage, which includes legally adopted children. The male spouse is not automatically required to pay for the full expenses of the child(ren) if both spouses are earning an income. The total expense is allocated to both income earning parents according to what both parents can afford, which could also mean the mother could end up paying for more than 50% of the child(ren)’s total expenses.
When accounting for child maintenance, you are allowed to include the child(ren)’s share of the accommodation and household expenses respectively, in addition to each child’s cost of education and medical bills. You are also allowed to think about the rate at which these expenses would increase annually to have the ex-spouse’s maintenance payments increase by the same degree and include this in the request to the opposing attorneys. These are all useful in attempting to close that income-expense gap when the ex-spouse is paying the larger share of the children’s expenses.
Once that is calculated, the next big decision is whether the agreed amount for spousal or child maintenance (or both) is to be paid once off or as a monthly income. Both approaches may work well but the risk with receiving a monthly income is whether the ex-spouse will always be consistent with the payments until the expiration date, and whether he will always have an income. On the other hand, the big risk with a lump sum or once-off payment is that the money may run out quicker than expected.
These choices are quite complex and yet so important in determining one’s ability to maintain a healthy financial position after divorce. These decisions span from lump sum or annuity payment from the ex-spouse, in what form to accept the maintenance and/or accrual payment, in which investment products and funds to place the divorce benefits, to what policies are needed to ensure children are taken care of in the event of death or the primary caregiver. A Financial Advisor will prove invaluable in helping you navigate these decisions.
5. A Financial advisor may prove invaluable in helping you navigate these decisions.
The truth is some divorces could take days while others may take years. Regardless of the duration, it would be prudent to update your current will and insurance policies to reflect your new preferences. This, applies, if you no longer wish for the soon to be ex-spouse to be the main beneficiary should you pass away. If the update is not implemented within three months of the official divorce date and you pass away, the executor of the estate will appoint your ex-spouse as the beneficiary if you were living as husband and wife. This may be an ideal time to approach your Financial Advisor to assist you to draw up a new will, to discuss your investment accounts and to amend your beneficiary list.
6. Invest in your future
This process is one of the most financially taxing life experiences. At the end of this journey, you may have emptied your savings account and incurred debt to pay legal fees, your retirement fund balance may have halved if your spouse had a claim against it, and your single source income may not be enough to cover all your expenses. One of the most important steps during and post-divorce is setting financial goals aimed at improving your financial position. If your ex-spouse played a lead role in managing household finances, now is the time to upskill yourself by:
- Consulting an experienced Financial Adviser who is knowledgeable with the divorce process to help materialise your financial objectives.
- Developing a budget with the help of your Financial Adviser, and who can provide guidance on managing all money related matters. The more you follow this budget, the faster you will recover from the financial implications of the divorce.
- Increasing your retirement fund so that you can retire well and have financial preservation as you grow older.
- Getting your own medical aid cover if you suspect that your spouse will remove you as a dependent on his medical aid.
- Building an emergency investment account to cover unforeseen costs as you no longer have a partner to rely on during tough times.
7. Invest in a support system
As mentioned earlier, this process can be quite long and draining. Therefore, having a support system that can act as a sounding board and provide a shoulder to lean on during this transition is crucial. This can be in the form of a support group in your neighbourhood, friends and family who may or may not have gone through the process, and/ or a psychologist. It may even be in a form of newly found networks through a new hobby! Whichever approach you choose as a support system, it is important to choose something that will help redirect your focus and energy on things that bring joy and stability during this time of uncertainty.
Although this process may seem daunting at first, many have survived it and continue to live successfully. Help can be found for emotional support, and for financial matters through an independent Financial Advisor. Partner with an adviser today. It’s the best investment you can make towards your financial future.