Divorce is an emotional rollercoaster that you can’t prepare for, but you can take control of your finances. If your spouse is a beneficiary of your life insurance or will, you might want to consider changing this. Make sure your divorce agreement makes provision for medical aid and if you have children, make sure you have a parenting plan in place.
According to a recent Sanlam survey, divorce is ranked the fourth most financially devastating event.
Stages of divorce – during your marriage:
Legal advice: How are you going to protect your rights if you can’t get the legal advice required? You need to squirrel away money for life crises. Arranging your financial affairs to ensure there is minimal disruption in the event of divorce is not a sign of disloyalty to your marriage.
Take an active role in the family finances so that assets are not hidden. If there is trust, make sure you understand how it affects you and get your own accredited financial adviser.
Stages of divorce – during the divorce:
- Financial planning advice: Consider your current savings vehicles.
- Retirement funds, pension, provident, retirement annuity, preservation funds- before retirement, pensions after retirement such as living annuities, guaranteed annuities. Do you have a claim?
Your divorce agreement must be drafted properly otherwise the fund won’t be able to implement it.
The pension interest in the member’s retirement fund is deemed to be part of their estate in a divorce. The word ‘pension interest’ is a technical term and must be used in a divorce agreement. A pension interest on a pension and provident fund is the withdrawal benefit if the member had to resign at the date of divorce. In a retirement annuity, it’s the contributions plus simple interest. No more can be awarded. As a result of the ‘clean break’ principle, funds can pay out divorce awards immediately, unlike in the past where funds could only pay divorce awards when the member left the fund. Now the non-member can also request the fund to pay the award in cash or to transfer it to a retirement fund of their own. The benefit of this is that the member continues to save for retirement and pays no tax upfront. At retirement, the tax is lower than if the member had to pay tax on being paid the tax.
A living annuity is different. The capital does not belong to the member and cannot be divided as a result of divorce. Only the income can be considered as part of the ability to pay maintenance. Administrators are not allowed to pay third parties, even if a divorce agreement says that they must.
Stages of divorce – after the divorce:
Change your will to exclude your former spouse. You have three months for this transaction. If you fail to remove him/her, he/she will be regarded as a beneficiary.
- Let your employer know you are divorced so that your spouse’s life cover can be removed.
- Start saving for your own retirement. Make sure you have a tax-free savings account.
- Assess your own life and risk cover to ensure that all is in place.
- Change beneficiaries on your own life policies and your pension fund.
- The result of the divorce may unfortunately be that neither party has enough funds for retirement, and urgent re-planning is necessary.
