Navigating the financial impact of life after divorce
Divorce can be a profoundly stressful life event that invariably results in heightened emotions, even in seemingly amicable situations. However, emotional impulses can lead to costly financial choices, jeopardising future financial security. Fighting on principle or seeking vengeance through protracted litigation drains finances and can lead to sub-optimal outcomes for both spouses.
Our advice is to partner with an impartial financial advisor who can provide clarity amid the emotional turmoil.
The benefits of seeking financial advice before signing the divorce se lement
While many people seek legal advice before filing for divorce, very few take steps to obtain independent financial advice before doing so. Agreeing to a divorce settlement without understanding how it will impact your financial future is never advisable. While the proposed settlement may appear attractive on paper, how does it translate for you financially? What retirement funding shortfall will you be left with? To what extent will you need to cut back on your living expenses? How does the settlement agreement impact your tax situation?
Understanding your rights to a share in the pension interest
If you are awarded a portion of your spouse’s pension fund interest in terms of the divorce settlement, it is of the utmost importance that the wording of the divorce order is correct. Incorrect or incomplete wording can result in the retirement fund refusing to pay out.
Bear in mind that if you are married in community of property, the non-member spouse will be entitled to claim 50% of the member’s pension interest as at the date of divorce. On the other hand, if you are married with the accrual system, your spouse’s pension fund value will be taken into account to determine the value of their estate as part of the accrual calculation.
The importance of updating your will
Not updating your will after your divorce can have disastrous consequences and may result in your ex-spouse unintentionally inheriting from you. Section 2B of the Wills Act provides a threemonth leeway for divorcing spouses to amend their wills in line with their changed circumstances. This means that if you die within three months of your divorce, your estate will be distributed as if your ex-spouse had died before you – in other words, your ex-spouse will not stand to benefit from your estate. However, after the three-month leeway period, if you have not updated your will, it will be assumed that you intended for your ex-spouse to benefit from your estate.
Securing your maintenance If your ex-spouse has a maintenance obligation in terms of the divorce order, consider putting life cover in place to protect this obligation. Keep in mind that a maintenance order in favour of your minor children can form a claim against your ex-spouse’s estate in the event of their death. A correctly structured life policy on the life of your ex-spouse can ensure that there is sufficient liquidity in their estate to meet their post-humous financial obligations.
Budgeting for a life a er divorce
Budgeting for one person as opposed to two does not mean that your budget is halved. Certain costs are fixed regardless of how many people benefit from them, such as rental, certain utilities, and the costs of caring for pets. At the same time, you will need to factor in how much you need to contribute towards your retirement funding so as to make any shortfalls.
As a single parent without the help of another set of hands, you may also need to account for the costs of au pairs, childminders and babysitters, especially if you work full-time.