When it comes to wealth-building, women still lag behind their male counterparts for a number of reasons. While some of the disparity stems from historical inequalities such as lack of pay parity, there are concrete steps women can take to fortify their economic positions and protect their financial futures. In this article, we explore five proactive ways in which women can protect themselves.
Understand your contractual obligations
If you’re married, it is important to understand that your marriage contract sets out the financial consequences of your union. Remember, a marriage can only come to an end through death or divorce, and to a large extent your marriage contract will determine what happens to your assets (and your debt) upon either of these eventualities. If you’re married in community of property (which is the default marital regime if you did not sign an ante-nuptial contract before getting married), you and your spouse share a single, joint estate in equal, undivided shares. While this may seem fair, it’s important to know that if you’re married in community of property, you are liable for all the debt that your spouse incurred both before the date of marriage and during the course of your marriage (and vice versa). Further, if your spouse runs into financial difficulty and cannot pay his debts, his creditors can apply for the liquidation of the joint estate which can effectively leave you destitute. While the accrual system is generally speaking a more equitable form of marital regime and affords protection against your spouse’s creditors, your spouse’s reckless financial behaviour can still have a detrimental effect on the value of the accrual. Women who are married out of community of property with the accrual exclusion can face a specific set of vulnerabilities especially when it comes to claiming for maintenance following divorce or from the husband’s deceased estate.
Use long-term insurance to protect your risks
Be sure that you are adequately protected against the risk of ill health or disability by putting appropriate disability and dread disease cover in place. If you enjoy group risk cover through your employment, be sure to understand what life and disability cover you have in place. Group risk cover tends to be fairly standardised in terms of the quantum provided and, as such, may not be adequate for your particular needs. For most, your income is the primary mechanism for wealth-building, and protecting your income should be of paramount importance. If you intend to become a stay-at-home Mother, ensure that you reassess your insurance cover needs so that you remain protected during these years. While you may not be able to retain your income protection cover, you may be able to put a suitable capital disability benefit in place as an interim solution. Further, keep in mind that your future financial security is directly linked to your spouse’s risk protection, particularly in the event of his death. In this regard, it is critical to ensure that your spouse has sufficient life cover to provide for his estate costs and liabilities in the event of his passing and to provide you with the necessary financial means to continue covering your living expenses.
Take responsibility for your retirement
For the average middle-class family, it is incredibly difficult for one income earner to save adequately for a joint retirement. One of the biggest financial mistakes a woman can make is to assume that her spouse is ‘taking care’ of their retirement savings. For most people, achieving a financially comfortable retirement takes decades of planning, investing, and compounding growth – and assuming that your partner is putting aside enough capital to fund both your retirement years is a dangerous one to make. Finding out later in life that you are underfunded for retirement leaves little room for corrective action and our advice is to take intentional steps to build retirement savings in your own name. Retirement planning for women can be somewhat nuanced given that many women interrupt their career and saving trajectories in order to have children – frequently compounded by gender pay disparity and the fact that on average women tend to live longer than men. Living approximately two- to five years longer than men, many women are likely to find themselves living alone later in their retirement years, and relying solely on your deceased spouse’s reduced pension income may be wholly inadequate for your needs. While you’re generating an income, it is advisable to maximise your allowable tax-deductible contributions towards a retirement fund, ensuring that you are appropriately invested for your investment time horizon. If you do interrupt your career to raise children, it is advisable to keep your accumulated retirement funds invested until you are in a position to restart your investment contributions. Further, while it’s only natural to want the very best for your children, ensure that you create a balance between providing adequately for your children and funding for your own retirement.
Have access to cash
Also important is to build and maintain a discretionary investment account that can be accessed on short notice should the need arise. Not only will this cash cushion protect you should high, unforeseeable expenses arise, but it will also form the foundation of an exit strategy should you find yourself trapped in an untenable relationship or marriage. Money cannot make you happy, but it can provide you with options when life deals harsh blows. Lack of access to capital is the single biggest reason that women remain in abusive relationships, and the most powerful tool to break the cycle of abuse is to ensure that women are economically empowered to make decisions that are in their best interest and those of their children. Be intentional about building up a cash cushion, whether in a savings account, access bond, or money market, and ensure that you keep these reserves at an adequate level.
Develop a joint estate plan
It’s absolutely imperative that you fully understand your financial position in the event of your spouse’s death (and vice versa) and take steps to ensure that you are both adequately provided for in the event of tragedy. A joint estate plan is a powerful and empowering tool for couples to put in place and should be a financial planning priority for couples. Using ‘first-dying spouse’ and ‘second-dying spouse’ scenarios, an estate planning exercise can highlight liquidity shortfalls in either estate, identify potential solvency issues, and determine possible cashflow issues for the surviving spouse in the immediate aftermath of the death of the first-dying spouse. Through effective estate planning, couples can configure their respective life and business assurance policies to ensure that they are appropriately structured to achieve their succession objectives and to ensure that the correct beneficiaries are nominated. A particular risk that women face is in circumstances where the bulk of their husband’s wealth is housed in their business interests which is not protected by appropriate buy-and-sell cover. Another risk that women face is where the majority of their spouse’s wealth is housed in retirement funds that can take up to 12 months to be distributed amongst the deceased’s beneficiaries following his death. The estate planning exercise allows couples to leverage available estate planning tools to ensure liquidity and cash flow, minimise death taxes, guarantee business succession, and maximise the financial legacy to the intended heirs and beneficiaries.
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