Divorce financial planning for women

It’s often said that no one wins in a divorce although, sadly, it’s often women who – for several reasons – emerge from a divorce in an economically less favourable position. While the number of people choosing to get legally married and subsequently getting divorced is declining, the fact remains that divorce can be financially devastating – and rebuilding one’s finances after divorce can take years, if not decades. And while it’s apparent that more couples are choosing to live together rather than get married, cohabitation comes with its own set of risks that can leave a couple financially exposed.

In order to understand the financial challenges that women face when divorcing their partners, understanding the stats is important. Recent numbers from Stats SA revealed that the median age for men to marry for the first time is age 37, while for women the median age is 33. This means that, in general, both men and women are choosing to get married later than in previous decades and are likely to have accumulated more assets by the time they get married. When it comes to divorce, the median age for men to divorce is age 45, whereas for women the median age is 41. This means that more marriages are likely to fail within the first 10 years of marriage than at any other time, which also happens to be the period in which a married couple is likely to have young children. In fact, the divorce rate is higher amongst couples who have children under the age of 18 years – which naturally has a financial impact on single mothers whose ex-spouses are unreliable maintenance payers. With financial difficulties very often being the cause of divorce, it’s not surprising to know that 17% of men and 24% of women are unemployed at the time of divorce – with divorce naturally exacerbating the financial difficulties of each spouse.

With this information in mind, the need for proactive divorce financial planning cannot be overstated, and every divorcing couple should be encouraged to seek trusted, independent financial advice at the outset of the divorce proceedings rather than after the divorce order has been granted, at which point very little can be done to change the outcome. There are an enormous number of financial, tax and legislative considerations that need to be taken into account when separating the assets of a married couple, and achieving an equitable settlement means fully understanding your rights and duties, and that of your spouse. If you’re a woman contemplating or in the process of divorcing your spouse, consider the following benefits that divorce financial planning could afford you:

  • Fully understanding the nature of your matrimonial property regime and how it affects your rights on the dissolution of your marriage is important for anyone going through a divorce. Knowing your contractual rights is empowering and can place you in a stronger negotiating position, especially when the divorce is contested. It remains surprising that so many couples don’t know what marital regime they are married under, whether or not they signed an antenuptial contract (ANC), or where to find their ANC.
  • When a couple is legally married, a reciprocal duty of support is created which means that each spouse is obliged to provide for the other to the extent that they are able to. While this duty of support comes to an end on divorce, the Divorce Act makes provision for the court to make orders regarding maintenance, although spousal maintenance is not a right, and the court can use its discretion when making an award. Sadly, women going through a protracted, acrimonious divorce – especially where a woman is a stay-at-home mother with no source of income – can be severely financially prejudiced while waiting for the divorce to be finalised. Women who find themselves in this position can apply for interim relief in the form of a Rule 43 maintenance order which can provide interim maintenance pending the finalisation of the divorce. At this point, it is important for the stay-at-home spouse (or the financially dependent spouse) to seek financial advice specifically when it comes to preparing a realistic budget for the court. Generally speaking, the final maintenance order is very much aligned with the interim maintenance order, so it’s important to the budgeting right the first time.
  • If you have minor children, you will be required to agree on a parenting plan which essentially outlines how each parent will exercise their parental rights and duties after the divorce, and it’s important to understand the financial consequences of what you are committing so that you can budget accordingly. As indicated by the stats, most divorces occur within the first ten years of marriage, when couples are most likely to have small children. Remember, your parenting plan sets out the details relating to care, contact and financial contributions towards the children, when and with whom the children will live, and where they will be schooled, amongst other things. The financial implications in terms of childcare, tutoring, child transport, extra-murals, aftercare, school uniforms, school tours, and babysitting should be quantified and duly accounted for. The actual cost of raising children is very often underestimated, and any unaccounted-for costs are often borne by the parent with whom the child resides most of the time.
  • Women who have not been active participants in managing the household’s financial affairs may not have full insight into their husband’s assets which essentially weakens their negotiating position. A particularly vindictive spouse may try to hide assets in a trust or offshore meaning that, once again, it is important to be proactive about seeking advice and finding hidden assets.
  • If your spouse contributes to a retirement fund, it is important to seek advice on your rights to claim a share of his pension interest. Keep in mind, however, that this is a highly technical area of financial planning and there are several critical steps to be followed to ensure that your rights are protected. The right of a divorcing spouse to claim a share of her spouse’s retirement benefit, known as a pension interest, is provided for in the Divorce Act (read together with the Pension Funds Act) and is aimed to allow divorcing spouses to share in each other’s retirement benefits at divorce rather than having to wait until formal retirement to receive their share of the asset. This means that if your spouse is a member of a pension, provident, preservation or retirement annuity fund, you may have a claim to a share of that investment on divorce, although this will largely depend on the nature of your marital regime. Most importantly, the wording of the divorce order in respect of your pension interest award must be handled by a divorce attorney who has specific expertise in this field because, if all the requirements are not met, the divorce order may be found to be invalid by the retirement fund which could result in delays in receiving your share of the pension interest and further legal fees to get the divorce order amended.
  • If you are entitled to a share of your spouse’s pension interest, you have the option to either withdraw the funds in cash or transfer them to another approved retirement fund. You do not have the option of making a partial withdrawal while transferring the balance to a retirement fund. The option to withdraw can have significant tax implications for you, so it is important to seek financial advice before authorising a withdrawal.
  • With almost one-quarter of divorcing women being unemployed at the time of divorce, cutting back costs, containing expenditure, securing interim maintenance, and planning to survive financially in the immediate future will be priorities, and seeking the advice of a financial expert during this period can be hugely beneficial.
  • As a divorcing mother with young children, you may be tempted to hold onto the family home for the sake of the children, but from a financial perspective this may not be in your best interests and it’s important to fully understand the financial consequences of doing so before signing the divorce settlement. A primary residence is often a couple’s largest asset and holding onto it may result in a significant part of your divorce settlement being tied up in an illiquid asset. Further, the maintenance, upkeep and running costs of a large home may place you under unnecessary financial pressure post-divorce which, in turn, could result in you having to sell the home in a downturned market. As such, it’s important to also explore the financial implications of downscaling to a smaller, less expensive property, or renting a property in the immediate aftermath of your divorce until your circumstances have settled and you have a clearer picture of what your financial future looks like.
  • If maintenance for your minor children is to be included in your divorce settlement, remember to insist that the maintenance payer’s obligation is protected through adequate life insurance and that the policy is structured to ensure that the correct beneficiaries are nominated and that the amount of cover is sufficient to meet his obligations in the event of his premature death.

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