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Financial planning for the stay-at-home spouse

The couple should decide at the outset how the household budget and money management will operate so as to avoid tensions and dispute.

The decision to be a stay-at-home parent is never an easy one to make as it involves financial sacrifices both for the family as a whole and for the person choosing to give up her career to raise children. With gender-based violence once again being in the spotlight, we are reminded that many women are forced to remain in unhappy relationships because they do not have the financial means to escape.

This brings to light the important need for stay-at-home mothers to have a financial plan of their own, and to be part of the family’s overall financial plan. While we are aware that there are many stay-at-home fathers, we have focused this particular article on mothers who have chosen to stay at home.

Life cover

The economic value of a stay-at-home mom is typically undervalued. It is estimated that the average stay-at-home mom works around 97 hours per week performing multiple roles which include child-minder, au pair, nurse, teacher, psychologist, driver, cleaner, housekeeper, chef and logistics manager, amongst others. Her job, although unpaid, is a critical one as it allows her partner to pursue a career, enhance his expertise, improve his income trajectory, and pursue his vocational ambitions while she raises the children and manages the home.

Not appreciating the economic value of the stay-at-home mom means that many such women are underinsured in respect of death or disability, which can have significant financial consequences for the family. As part of joint financial planning for the couple, it is essential to consider the life, disability and dread disease needs of the stay-at-home mother. If she was no longer around, who would perform her duties? Who would clean the house, tutor the children, lift them to school and extra-mural activities, do the shopping, wash the clothes, attend to the medical needs of the children, cook the meals, and manage the operations of the home?

If she was to fall ill or suffer from a temporary or permanent disability, who would take over her functions? More importantly, who would care for her? When quantifying the insurance needs of the stay-at-home spouse, give careful thought to the cost of replacing her functions – both in real terms, such as paying an au pair or hiring a domestic worker, and in terms of how the breadwinner’s income would be affected as a result of him working fewer hours and assuming more responsibilities at home. 

Investing

Not earning an income means that the stay-at-home spouse does not benefit from the tax advantages of contributing to a retirement fund. The result is often that all the couple’s retirement savings are invested in the name of the breadwinner. In the event of divorce before retirement, the stay-at-home mom will have a claim to her share of her spouse’s pension interest as part of the divorce settlement, including any interest that he holds in a pension, provident or retirement annuity fund.

However, where the couple divorces after the husband has retired from the fund(s), the non-working spouse can be severely prejudiced. This is because money held in a living annuity does not fall under the definition of ‘pension interest’ as defined by the Divorce Act. As such, the annuitant cannot give part or all of his living annuities to an ex-spouse in terms of a divorce order, nor can he agree to split the annuity income with his ex-spouse. Common law principles and the division of matrimonial assets will then apply to any pension interests that have already accrued to the breadwinner at the time of divorce. 

Budgeting and money management

One of the greatest dichotomies that arise in situations where one partner works while the other stays at home to raise the children is the ‘earn versus spend’ dilemma. While the breadwinner generates all the income, it is the stay-at-home spouse that generally makes most of the purchasing decisions. This innate tension can lead to resentment and anger on the part of the income earner, countered by guilt and anxiety on the part of the non-working spouse. Somewhat shielded from the costs of food, medicines, clothes and child-rearing in general, the non-working spouse is often left trying to justify and account for her expenditure. This in itself can create a power imbalance in the relationship that can lead to further tensions later on if left unresolved.

Ideally, the couple should decide at the outset how the household budget and money management will operate so as to avoid tensions and dispute. A woman who has given up her career to raise children may find it difficult and demeaning to ‘ask’ her spouse for money or to seek ‘permission’ to make certain purchases. Ideally, the couple’s financial plan should set out the mechanisms for money management and clearly define their respective roles in managing the joint finances.

Bank account

Not having her own bank account can leave a stay-at-home mother in a financially vulnerable position, especially in the event of a tragedy or in the case of separation or divorce. Further, a well-operated bank account is essential for applying for credit or financing, taking out a cell phone contract, ensuring a good credit record, Fica, and for general day-to-day transacting. Drawing money, giving the children money for tuckshop, paying ballet or soccer fees, last-minute purchases for school lunches, treats or takeaways for the kids, tipping and parking, medical emergencies – there are multiple reasons for any stay-at-home spouse to have their own bank account or at the very least a shared bank account.

Should the breadwinner become incapacitated through illness or injury, a stay-at-home spouse could be left in a position where she has no bank account of her own and is unable to access her husband’s accounts in order to continue paying the bills. Where a couple divorces, a stay-at-home mom without her own bank account, and in the absence of any banking history, will find it very difficult to obtain any form of credit or financing, making the simple task of taking out a cell phone contract or buying her own car particularly difficult.

As part of the couple’s joint financial plan, mechanisms should be put in place to ensure that the non-earning spouse has at least a joint bank account, has access to cash, and can transact independently in the event that her spouse is incapacitated for whatever reason. 

Marital contract

A couple’s matrimonial property regime will affect how their assets are divided in the event of a divorce. Where a couple is married in community of property, each spouse will have a claim to a 50% share of the joint estate. However, bear in mind that this includes any debt that was incurred both before and during the subsistence of the marriage. This means that if the breadwinner has racked up debt, the non-earning spouse can be held liable for half of that debt. The accrual system is a much fairer marital regime – especially for the non-earning spouse – because it ensures that whatever the couple has built together during the course of their marriage is shared equally on divorce.

Where a couple is married out of community of property without the accrual system, a stay-at-home spouse could be severely prejudiced should the marriage come to an end. Under this marital regime, there is no division of assets in the event of a divorce, including pension fund interests, and each spouse leaves the marriage with his or her own estate. A stay-at-home mom who sacrificed her career to raise children would have found it difficult to grow her wealth during the marriage while, on the other hand, her husband would have benefited from pursuing his career, generating wealth and increasing the size of his estate. The only claim the stay-at-home spouse would have in the event of a divorce would be in respect of maintenance from her ex-husband. That said, the courts will take into account the duration of the marriage and the mother’s future earning potential when assessing the maintenance claim. 

Future employability

The rapid pace of technological advancement and industry disruption means that even a few years out of the job market could significantly impact one’s future employability. In a downturned economy with unemployment rates at over 30%, re-entering the job market after being a stay-at-home parent can be particularly challenging. While the intentions may be to stay at home until the children reach school-going age and thereafter re-enter the job market, this may not be practically possible given the economic climate we now find ourselves in. The couple’s joint financial plan should take into consideration the future employment prospects of the stay-at-home mom, to what extent the household finances depend on her ability to generate income once the children are older, and steps that the stay-at-home spouse should take to remain professionally and economically future-ready. 

ADVISOR PROFILE

Craig Torr

Crue Invest (Pty) Ltd

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