Many divorcing couples only come to fully appreciate the financial implications of dividing one’s assets later on in the divorce process. The immediate and longer-term consequences of divorce cannot be overstated and, as such, before initiating divorce proceedings our advice is to sit down with your financial advisor and find answers to the difficult questions. Here are some questions to consider:
How are you married?
Related questions: Do you have a copy of your marriage contract? How long have you been married? Are you married under customary law or religious tenets? Were you married in South Africa?
Before you can start planning the possible division of assets, the first step is to understand the nature of our marriage contract and how this affects what you are legally entitled to in terms of law. If you are married in community of property, you and your spouse share a common, joint estate which will need to be divided into two. If you are married out of community with an ante-nuptial contract, you will need to give consideration to the commencement values stipulated in your contract, the extent to which your respective estates have grown during the subsistence of the marriage, and what the accrual calculation would look like in the event of divorce, amongst other things.
What does your joint household budget look like?
Related questions: How do you and your spouse manage your joint finances? Is it an equitable arrangement? What does it realistically cost you and your family to live each month?
The shift from running one household to running two households will invariably cost money, so it’s important to understand what your current budget looks like, how your money is being allocated, and whether there is room in the budget for the inevitable additional costs that will arise as a consequence of divorce. There are also more practical considerations to be contemplated such as how you and your spouse manage your day-to-day finances, who pays the bills, and in whose name the various accounts are registered. If you’re only barely managing to cover your monthly living costs, you will need to consider how you will survive financially when running two separate households.
How much do you earn?
Related questions: How much disposable income do you have each month? How secure is your job/income? Is there wiggle room in your budget?
It is essential to take stock of how much you earn, what your future earning potential is, and how secure your job or income is going forward. Remember, while you may be able to claim maintenance as part of the divorce settlement, amending a maintenance order is a slow, frustrating process – meaning that, if your future earnings are uncertain or at risk, you need to consider how you will manage any potential cashflow shortfalls. The transition to a single-income household will invariably mean reigning in some expenditure and creating space in your budget for additional post-divorce expenses.
Do you have any emergency funding in place?
Related questions: To what extent would your emergency funds cover your living expenses? How accessible are the funds?
The costs of a divorce can be difficult to quantify upfront. What may begin as a seemingly uncomplicated divorce can end up being drawn out, acrimonious and expensive. Having emergency money is therefore essential to ensure that you have access to funds should you encounter unforeseen legal costs, late interim maintenance payments, psychological assessments, or other professional fees.
Do you have minor children?
Related questions: How much do you realistically spend each month on your children? Could you cut back on these expenses? If so, how? How many more years will your children need to be financially supported?
While we all know that children are expensive, takes time to quantify exactly what each child costs in terms of education, clothing, food, extra-murals, healthcare, transport, etc, as it is important not to underestimate these costs when claiming for maintenance. You might also want to consider whether there are costs that you can cut back on, such as moving your children from a private to government school, changing medical aid plan options, or reducing certain extra-murals.
What assets do you have in your name?
Related questions: Do you have any inherited assets? Were any assets specifically excluded from your ante-nuptial contract? Do you have any foreign assets?
Before entering into divorce negotiations, make an inventory of all assets held in your name, including assets jointly owned by you and your spouse. If you have any inherited assets, keep in mind that these will generally be excluded when it comes to the divorce settlement. Establish whether any assets were specifically excluded in terms of your antenuptial contract, and understand the legalities involved in the event that you have assets in a foreign jurisdiction.
Do you have any retirement funds in place?
Related questions: What type of funds do you have? What is the value of your retirement funding? Are you and your spouse on track to achieve your joint retirement goals?
There are very specific rules when it comes to the division of retirement fund assets in the event of a divorce, so knowing what type of funds you have in place is an important first step. Depending on how you are married, the spouse who is not a member of a retirement fund may have a claim for a share – known as a ‘pension interest’ – of the member spouse’s retirement assets. Once again, your financial advisor should be able to explain how the pension interest calculation would work in your situation.
How much do you know about your spouse’s financial affairs?
Related questions: What does he/she earn? What assets does he/she have in his/her own name? Do you own any assets jointly? Does he/she have any trusts? How secure is his/her job/income?
Determining what you could realistically expect in terms of divorce settlement means understanding what assets your spouse has. In a particularly acrimonious divorce, a spouse could attempt to hide assets in a living trust or move assets offshore in the hope that they won’t be found. If you and your spouse own assets jointly, such as the family home, you will need to think about how these assets will be dealt with should you divorce.
Who are the beneficiaries of your life policies?
Related questions: Do you have any policies registered under your ante-nuptial contract? Do you have group life cover in place?
Ask your financial advisor to pull a policy schedule for you and ask your HR department to provide you with details of any group life or disability cover. Take stock of exactly how much cover you have and who your nominated beneficiaries are. Your financial advisor should be able to advise you on how your long-term insurance needs will be affected by your divorce and how best to structure your beneficiary nominations.
What is your credit score?
Related questions: Have your spouse’s spending habits affected your credit score? Are you able to secure financing if necessary?
If you haven’t checked your credit score in a while, be sure to do so – especially if you and your spouse are married in community of property. If your spouse has engaged in irresponsible financial behaviour, it is possible that this has adversely affected your credit score. Any damage to your credit score can affect your ability to secure vehicle or home financing later on.
Where do you envisage living?
Related questions: Do you want to continue living in the family home? If not, where would live? What would it cost? Is it realistically affordable?
While your intention may be to hold onto the family home for sentimental reasons, this is often not the wisest course of action. You will need to consider whether your income will allow you to cover the running costs of the family home, or whether holding onto the asset as opposed to liquidating it will result in cash flow problems later on. Consider alternatives to staying in the family home and do your research in terms of buying a smaller property versus renting appropriate accommodation.
What additional costs would arise as a result of divorce?
Related questions: How flexible are your work hours? Do you have a support group that can assist? Will you be required to take more time off work in order to manage the logistics of getting your children to and from school? What would your new budget look like? Would you need to generate additional income?
Do not underestimate the costs that may arise as a consequence of divorce. Running a joint household means enjoying the benefit of two pairs of hands when it comes to raising children, maintaining the property, and running the household. As a single parent, consider what additional expenses you would need to incur in terms of babysitting, aftercare, au pairing and tutoring, and child transportation. Take time to put together a post-divorce budget so that you know what you are realistically working towards when entering into divorce negotiations.
Have a wonderful day.