It’s never easy at the beginning of a relationship to plan for the end, but it’s unwise not to. The best time to put mechanisms in place to protect yourself financially is at the start of a relationship. When a relationship begins to deteriorate, agreeing on financial matters often becomes increasingly difficult – and waiting until the relationship has completely broken down before considering the economic impact of a divorce is usually too late. In this article, we take a look at some proactive steps married couples can take to secure their financial futures and protect themselves should the relationship come to an end.
Know how you’re married: The nature of your marriage contract forms the foundation of the financial arrangement between you and your spouse, and it is important to understand how your marital regime affects your rights. The legal consequences flowing from your marriage contract affect almost all areas of your finances, both during your marriage and in the event of a divorce. Understanding the nature of your marriage contract will guide your financial decision-making and ensure that you’re intentional about the way your assets are structured while you are married.
Seek financial advice before getting divorced: Be sure to see financial advice before finalising your divorce agreement to ensure that you fully understand the consequences of what you’re about to sign. Having a clear understanding of your financial position and rights going into divorce negotiations is likely to place you in a stronger position and ensure better outcomes. In particular, be certain of your rights to your spouse’s pension interest, understand what you can realistically expect in terms of maintenance, and consider fully the implications of holding on to the family home. Remember, there may be tax and CGT consequences when transferring or selling assets, and it’s vital that you appreciate these costs before signing any agreement.
Maintain your own financial profile: Regardless of your employment status, it’s crucial to establish your own financial profile, which includes a well-managed bank account and at least one account in your name. This ensures you have a financial history to rely on if your marriage ends. Additionally, have your cell phone contract and phone number registered in your name to maintain control over them in the future. Similarly, ensure your vehicle is registered under your name, not your spouse’s or their business. This prevents potential complications and ensures you are not left without essential assets if the marriage ends. Taking these steps will help protect your financial independence and stability.
Protect your credit score: If you’re married in community of property, you and your spouse share a credit record. This means their financial behaviour, such as high amounts of debt or poor banking habits, can negatively affect their credit score. In contrast, if you’re married out of community, you are solely responsible for your credit score. Maintaining a good credit rating is crucial, as it ensures you have a solid foundation for applying for credit—such as vehicle or home financing—should your marriage end. Taking care of your credit profile helps secure your financial stability and independence.
Be cautious about not earning an income: If you choose to stop working, make sure that you fully understand the implications of doing so. If you do not generate an income of your own, you will find it very difficult to build wealth in your personal capacity. As an income earner, you receive a significant tax incentive to invest towards a retirement annuity thereby securing your own financial future – and choosing not to work will rob you of this opportunity. If you and your spouse have agreed that you will be a stay-at-home parent, insist that you have an investment such as a unit trust portfolio set up in your own name so that you have access to money should you ever need it. Any potential claim that you have towards your spouse’s retirement funding in the event of a divorce will depend on how you are married. If you are married in community of property, you will automatically be entitled to 50% of your spouse’s retirement benefit as it forms part of the joint estate. However, if you are married with the accrual system, you will need to claim a share of your spouse’s pension interest should you get divorced, and this value will be determined in accordance with Section 7 of the Divorce Act. There are inherent risks that stay-at-home spouses married out of community of property with no accrual face, although the Constitutional Court’s 2023 ruling which declared Section 7(3) of the Divorce Act unconstitutional has somewhat mitigated these risks. Whereas previously only couples married out of community of property without the accrual before 1 November 1984 could apply for a redistribution order, the court has granted interim relief while Parliament takes the necessary steps to amend the Constitution.
As part of these remedial steps, the apex court ordered that Section 7(3)(a) of the Divorce Act be read to exclude reference to ‘before the commencement of the Matrimonial Property Act, 1984’. This means that where a party to a divorce hearing who concluded their marriage on or after 1 November 1984 out of community with no accrual may now apply for a redistribution order, and the courts are able to grant a redistribution order that it deems ‘just and equitable’. However, this does not mean that a spouse is automatically entitled to share in their spouse’s assets upon divorce. A party bringing a redistribution order would need to provide sufficient evidence to show that they contributed directly or indirectly to the other party’s estate.
Importantly, there remains lack of clarity on whether such a redistribution order can include all or a portion of a spouse’s ‘pension interest’ in a retirement fund. It remains to be seen whether a party’s ‘pension interest’ is deemed to be part of their assets as contemplated in Section 7(7)(a) of the Divorce Act and how the division of such assets should take place. As such, be aware that if you’re married out of community of property with the accrual, you remain at greater risk in the event of divorce.
Have a seat at the table: Many women find themselves trapped in unhappy and/or abusive relationships because they do not have the financial means to escape. As such, it is absolutely essential that every woman in a long-term relationship or marriage becomes actively involved in the joint finances at the very outset of the relationship and continues to co-manage financial matters throughout the relationship in the best interests of both parties. One of the greatest risks facing women who are suddenly faced with a divorce that they didn’t see coming is being left financially helpless while the divorce is being finalised. Our law recognises this risk and, as such, provides a mechanism to assist spouses in applying for an interim maintenance order. This can be done in terms of either Rule 43 of the High Court or Rule 58 of the Magistrate’s Court with minimal legal costs involved. A spouse in this position can claim interim maintenance to cover the care of the children, providing maintenance for herself, enforcing certain payments such as the bond, school fees and medical aid premiums. Remember, if you and your spouse are cohabiting, you do not have access to this legal mechanism, and you could be left financially high and dry which is, however, a risk you can mitigate through a well-constructed cohabitation agreement.
Even in the most amicable situations, divorce is never easy. But, fortifying your financial position and sharing financial responsibility with your spouse or partner throughout your relationship will place you in a significantly stronger position in the event that divorce happens.
Have a super day.
Sue
