Don’t be blind to the real costs of divorce

1 Dec 2020

One in two couples will eventually divorce. But most people don’t understand the legal and financial complexities. This, the second in a three-part series, unpacks some issues to consider.

First published in DM168

When you get divorced, your assets are split according to the marital regime you signed up for when you tied the knot. While love makes you blind to many things, divorce is guaranteed to give you clear vision.

In South Africa, there are three different legal marriage contracts:

Community of property

Your marriage is automatically considered to be in community of property if you do not sign a marital contract beforehand. Under this regime, your assets are split 50/50 on divorce.

Antenuptial contract

If you sign an antenuptial contract (ANC), this usually means that each spouse retains their own assets on divorce: you keep the assets you brought into the marriage as well as any assets you purchased with your money. Your savings are included, which means your retirement fund benefits remain your own and are not split on divorce.

ANC with accrual

This is a compromise between the above two contracts. You each retain ownership of the assets you brought into the marriage and all assets accumulated during the marriage are split on divorce. This includes your retirement fund benefits. Any bequests or inheritances are excluded from your divorce settlement and remain your own.

Important tick boxes

Divorce is rated as one of the five top stressful events you can experience in life, along with the death of a loved one, moving home, illness, injury and losing your job.

Kerry Sutherland, a certified financial adviser at Alexander Forbes, cautions that during the emotional turmoil, there are several things you must remember to address:

Updating wills and policies

“If you get divorced and you don’t update your life insurance policy, your former spouse will be paid the money if they are still listed as the beneficiary,” she says.

However, if you have group life cover, the onus lies with the retirement fund trustees to investigate who your dependants are.

“For example, if your former spouse is paying a high portion of your child’s education costs, the fact that he had a monthly maintenance obligation will be taken into account when distributing that life cover payout – even if you and your children are not nominated as beneficiaries on the group life cover,” Sutherland says.

When it comes to your will, the Wills Act gives you a three-month grace period to change your will post-divorce. If you have not done so after three months, the assumption is that you intended your former spouse to inherit your estate.

Pre-existing policies

Assuming you have pre-existing life insurance policies, you can make it a condition of your divorce agreement that the policy is maintained for the benefit of your child or children. However, Sutherland warns that you should take over ownership of the policy to ensure that your ex doesn’t cancel the policy.

“The other thing they can do is default on the debit order. The easiest option is to calculate the premium and make that part of your monthly maintenance so you can ensure that the premiums are always paid,” Sutherland advises.

Medical scheme membership

If you were a dependant on your former spouse’s medical aid scheme, you can ask to be kept on the scheme for a few months while you sort out a new medical scheme membership for yourself. Make sure that there is no gap between cover when you do this.

Your credit record

It can be extremely easy to lose track of details while caught up in the divorce process. Stay on top of your financial obligations so that your credit record is not negatively impacted. If you have a personal banker, let them know you are going through a divorce.

Retirement planning

If you did have to split your retirement funds on divorce, you should consult with your financial planner to determine the effect this will have on your financial plan. You will most likely have to increase your monthly savings to make up the difference or as much of it as possible, over the long term.

Moveable property

Sue Torr, managing director of Crue Invest, says that when it comes to divorce, many proceedings become unstuck because couples cannot see eye to eye on the ownership of the so-called small stuff.

“Incurring legal fees to win an argument over who owns the microwave is counterintuitive and only serves to diminish the value of any joint accrual. To avoid arguments and costly delays in the event of divorce, make filing and record-keeping a habit in your relationship,” she says. BM/DM

In DM168 next week: What you need to know when calculating maintenance.

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