Divorce and your finances: Key factors to consider

While the number of marriages in South Africa drops each year, the rate of divorce is sadly on the rise. In general, the financial implications of a divorce are devastating and often result in both partners having to significantly lower their standards of living post-divorce.

With so many emotional, financial and logistical implications, the decision to divorce is seldom taken lightly. From a financial planning perspective, there is much to consider when planning a divorce.

Understand your marital property regime

The starting point of any divorce negotiation is to understand the marital property regime that you’re married under. How you are married will determine the guidelines for financially exiting the marriage. In terms of South African law, there are essentially two marital property regimes, being in community of property and out of community of property.

In the absence of an ante-nuptial contract, a marriage will automatically be in community of property, and the two estates will be combined to form a joint estate. If you have signed an ante-nuptial contract, your marriage is out of community of property. Unless you have specifically excluded the accrual, your marriage will be subject to the accrual system.

In the case of a marriage in community of property, the assets of the joint estate will be divided equally between the parties. Where a couple is married out of community without the accrual, each spouse retains a separate estate, and whatever assets and liabilities they have – whether accumulated before or during the marriage – fall within their separate estates. Where a couple is married with the accrual system, a more complicated accrual calculation will be used to separate the assets in terms of which everything acquired during the subsistence of the marriage is shared equally.

Cut back expenses 

Over and above the legal costs of a divorce, the costs of physically separating your lives into two separate homes can be enormous. Expenses can include moving costs, rental deposits, new furniture and appliances, domestic worker hire, short-term insurance cover, soft furnishings and subscriptions such as fibre and streaming services. While you might be comfortably making ends meet prior to your divorce, it is advisable to make a concerted effort to cut back your expenditure in anticipation of the additional (and often unseen) costs that lie ahead.

Secure your medical aid coverage

Depending on the terms of the divorce order, one spouse may be liable for paying the membership premiums of the other spouse either indefinitely or for a pre-determined period of time. During the uncertainty of divorce negotiations and proceedings, which in the case of a contested divorce can sometimes take years, it is important not to let your medical aid membership lapse. If your medical aid membership lapses, you will need to re-apply for membership in the scheme and may be subject to underwriting – something which could result in waiting periods and exclusions.

Understand your retirement funds

In terms of the Divorce Act, retirement funds form part of a member’s assets and must be considered when dividing the marital assets. In terms of the ‘clean break principle’, retirement fund benefits accrue to a member at the date of divorce. If you are married in community of property, you can claim your share of your ex-spouse’s retirement fund benefits with the option to withdraw your portion in cash (subject to tax) or to transfer your share of the benefits to another retirement fund.

In order to claim your share of your spouse’s pension interest, the divorce order must be precisely worded to ensure that it can be enforced, keeping in mind that many poorly worded divorce orders have resulted in the order being rejected by the retirement fund. To ensure that the order is accepted by the retirement fund, it must specifically name the retirement fund, set out the exact amount or percentage assigned to the non-member spouse and include a specific instruction to pay the benefits to that spouse.

Amend your life policies

Following your divorce, it will be necessary to revisit the quantum of life cover you have in place together with your nominated beneficiaries. If your ex-spouse is responsible for maintenance in terms of the divorce order, it is wise to ensure that they have a life policy in place to protect their maintenance obligations in the event of their death. If your spouse was the nominated beneficiary on your life policy, you may wish to amend this to avoid them inheriting unintentionally.

Update your will

Something that many newly divorced people neglect to do is to update their will, which could have disastrous and unintended consequences. The Wills Act essentially makes an allowance for divorcees to amend their wills in the three months following the divorce. In terms of Section 2B of the act, if a testator dies within three months of the date of divorce, then the will that was drawn up before the divorce will be executed as if their spouse had pre-deceased them. In other words, their former spouse will not inherit if they die within three months of the divorce. If they die after the three-month period, the law assumes that even though they had the chance to amend their will, they chose not to – and their former spouse will, therefore, be eligible to inherit.

Separate your short-term insurance

Once your new living arrangements have been finalised, you will need to separate your short-term insurance. The spouse who retains the house will need to adjust the insured value of the household contents and remove any assets from the policy that belong to the other spouse. Similarly, where a spouse moves out and finds alternative accommodation, they will need to put appropriate short-term cover in place.

Don’t spoil the children materially to appease your guilt

Most parents going through a divorce attest to experiencing unbearable feelings of guilt. Unfortunately, in many divorce situations, parents make the classic mistake of overspending on their children as a way of assuaging guilt or making up for lack of time with the kids. While spoiling children in the wake of a divorce is common, it is definitely not wise. Besides sabotaging your own financial goals and possibly causing tension with your ex-spouse, it can also damage your children’s relationship with money. Given that children learn most of their financial values from their parents, our advice is for both partners to remain positive role models when it comes to money.

Consider the costs of running two separate households

The costs of uncoupling and running two separate households cannot be underestimated. Given that divorce generally involves doubling up on one of the family’s largest monthly expenses (the rent or bond payments), it goes without saying that a family will feel the effects financially. Over and above the costs of paying for a second home, other expenses are driven by the need to duplicate expenses such as furnishings, childcare, domestic help, electricity and water, subscriptions and insurance.

Opt for an uncontested divorce if possible

An uncontested is by far the quickest and least expensive type of divorce and generally results in less emotional stress. By working together with the same attorney, spouses in an uncontested divorce agree to the divorce terms, maintenance, division of assets and childcare plan. The attorney will then draft the settlement agreement and have it made an order of court.

An uncontested divorce can cost anywhere from R8 000 to R20 000 and can be finalised in a matter of weeks. Emotionally and financially, an uncontested divorce is undoubtedly first prize and can be achieved if both partners are committed to an amicable and fair resolution. On the other hand, a contested divorce can drag on for years as spouses dispute over maintenance, division of assets and childcare. The emotional costs of a contested divorce are high, and the legal bills can run into hundreds of thousands of rands.

Find a mediator

Another way of avoiding the high costs of a contested divorce is to appoint a mediator to help you reach common ground. Being impartially trained professionals, mediators are skilled at helping couples focus on resolving disputes and moving forward. Once the mediator has helped the couple reach agreement, their lawyers will draft the divorce settlement agreement, and have it made an order of court. Mediated divorces can be finalised within three months if both parties are committed to the process.

Keep your emotions in check

Divorce ranks as the second most stressful life event after the death of a spouse, making it incredibly difficult not to make emotional decisions during this time. However, fighting a battle ‘on principle’ or being more focused on retribution than on resolution are not effective strategies to bring to the negotiation table. In fact, it is likely that these strategies will result in increased animosity, a protracted divorce and escalating lawyer’s fees. Employing tactics based on your emotions is likely to lead to irrational decision-making at a time when you are likely to be at your most fragile.

Faced with a protracted divorce and mounting legal costs, you may well be tempted to cut your financial losses and walk away from assets that you may have a rightful claim to – something which you are likely to regret once the dust has settled. The role of a neutral mediator in keeping emotions in check and allowing both spouses to be heard cannot be overestimated.

Avoid sentimental attachments

Closing a major chapter of your life may lead you to develop sentimental attachments to material things such as the family home, a holiday house or pieces of furniture that you believe hold significance for you. These emotional attachments may become stumbling blocks in the negotiation process and create unnecessary delays. Keep a firm check on any emotional attachments you may have to material belongings and commit to making rational decisions that are in your best interests.

Look out for your own best interests

Unfortunately, many divorces end up being acrimonious, especially if they involve protracted negotiations, stalling tactics, or attempts by one party to hide assets. While your decision to separate and ultimately divorce may start out amicably, avoid entering into negotiations too naively. Be sure to look out for your own best interests and ensure that you have a team behind you that will do the same.

Itemise your assets and those of your spouse. In acrimonious divorces, some spouses can try and hide their assets in places such as cryptocurrencies or offshore. Be realistic about the fact that your spouse is likely being advised to look out for their own best interests, too.