Once a divorce agreement has been made an order of court, the next step for divorcing couples is to begin the arduous process of separating their financial affairs. While this process can be administratively taxing and time-consuming, it can also be an emotionally draining one as each party faces the stark reality of separating their affairs for good. Although every person’s situation is unique, this article serves as a general guide for those needing to separate their affairs as a result of divorce.
PERSONAL FINANCIAL PLANNING
Draft a post-divorce budget: Once your divorce has been finalised, you will have a clearer picture of your income including any maintenance income payable by your ex-spouse. This is an appropriate time to draw up a post-divorce budget so that you can set up the financial mechanics of your new life. Your budget will give you guidance as to how much you can afford to spend on accommodation, groceries, vehicles, domestic help and insurances, so be as thorough and realistic as possible in detailing your budget.
Take control of your debt: The terms of your divorce order will also specify who is responsible for any debt that you and your ex-spouse had. Be sure to make a list of all the debt you are responsible for paying and ensure that the service provider has your correct contact details. Don’t forget to account for these repayments in your budgeting process and, if necessary, put a debt reduction plan in place to help manage the repayments.
Centralise your banking: The terms of your divorce order will set out who is responsible for the payment of expenses such as school fees, medical aid premiums, childcare and other ongoing services. Use this opportunity to set up your debit orders correctly and update your beneficiary details on your online banking portal. Whatever other expenses and bills you are responsible for paying in terms of the divorce order, be sure to communicate your changed status with each service provider, including any change in your residential address or contact details. If you and your ex-spouse had any joint bank accounts and/or credit cards, you will no doubt want to separate these accounts accordingly. If you and your ex shared login credentials, don’t forget to reset your username and passwords as further protection. The same applies to any joint retail accounts you may have held together.
Review your short-term insurance: Once you and your ex-spouse have divided your assets between you, be sure to update your short-term insurance accordingly. It is advisable for each of you to take out your own insurance policy to provide for your short-term insurance needs. As opposed to amending an existing policy, now is an opportune time to completely review your short-term insurance, recalibrate your inventory of insurable assets, and look for most cost-effective and/or innovative options.
Update your long-term insurance: Your risk cover objectives are likely to change following your divorce order, so be sure to review and update your long-term insurance cover as soon as possible. Your financial advisor should be able to assist you in preparing an updated balance sheet and calculating your capital needs in the event of your passing. Importantly, if you have maintenance obligations towards your ex-spouse and/or children in terms of your divorce order, be sure that these financial obligations are provided for when quantifying your life cover needs.
Check your beneficiary nominations: Most importantly, be sure to review and update the beneficiary nominations on your policies, including any group life cover and/or retirement funds that you have in place. If you had previously nominated your spouse as a beneficiary, you will no doubt want to update these nominations to ensure that the right people benefit from your estate in the event of your passing. As a word of caution, minor children are not capable of inheriting funds directly so think carefully before nominating them as beneficiaries on your life cover. A more feasible option would be to set up a testamentary trust in your Will which can house any assets intended for your minor children until they are old enough to manage their own affairs. Keep in mind also that the death benefits of any retirement funds will be distributed in accordance with Section 37C of the Pension Funds Act, meaning that these funds will be allocated amongst your financial dependants as per the findings of the fund trustees.
Depending on the terms of the divorce order, you may need to move off your ex-spouse’s medical aid and register as the principal member of your own medical aid. This may be a good time to completely reassess your healthcare needs in terms of your own health status, chronic conditions, affordability and accessibility to healthcare networks. Your post-divorce budget may be tight but resist the temptation of coming off your medical aid. Most medical schemes offer affordable network options that will at least provide you with basic hospital cover, ensuring that your membership is uninterrupted and that you will not be penalised later on in life. If you and your ex-spouse had a gap cover policy, you may need to come off his/her policy and take out a policy in your name. Once again, try to avoid an interruption in membership as this can result in waiting periods being imposed again if and when you want to join later on.
If you were awarded a portion of your ex-spouse’s pension interest, you can elect to either withdraw the funds or transfer the funds into a retirement annuity or preservation fund of your own. Bear in mind that any withdrawals will be taxed in the hands of the non-member spouse as per the retirement withdrawal tables whereas a transfer to another approved fund will take place on a tax-free basis. Being solely responsible for your retirement funding is a huge undertaking, so be sure to get expert retirement planning advice before making any withdrawals. In general, a divorce sets both parties back financially and it is of the utmost important to start planning for your financial future as soon as possible after the divorce.
One of the most important documents you’ll need to update after your divorce is your last will and testament. Section 2B of the Wills Act provides divorcees with a three-month grace period in which to amend their wills following a divorce. In essence, this means that if you die within three months of the date of your divorce and your ex-spouse is a named beneficiary, your assets will be distributed as if your ex-spouse had predeceased you. After the three-month period if you have not amended your will, the courts will assume that you intended your ex-spouse to inherit from your estate.
Filing and legal documentation: Separating the documents between you and your ex-spouse might be a difficult task, and it may make sense to make copies and/or scan the filing system so that you each have access to the documentation. You will both always require access to legal documentation such as birth and marriage certificates, identity documents and passports, academic records, marriage and divorce certificates, title deeds, lease agreements, and so on, so it makes sense to give each party access.
Updating Home Affairs: It is important to ensure that the change in your marital status is registered with Home Affairs as this may impact on your ability to re-marry in the future. If your status remains recorded as ‘married’ on the system, you may have difficulties later on in life if you choose to remarry.
If you took your husband’s surname when you got married and it is reflected as such in your ID book, you can apply through Home Affairs to revert to your maiden name.
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