It’s never easy at the beginning of a relationship to plan for the end, but it’s naïve not to. The best time to put mechanisms in place to protect yourself financially is at the start of a relationship. Once a relationship begins to sour, it’s almost impossible for couples to agree on anything, least of all money matters. It does not help to wait until your relationship has irretrievably broken down to start considering how a divorce will affect you financially. It’s important to take steps from the outset to secure your financial future and protect yourself in the event that your relationship comes to an end.
Understand the nature of your marital regime
The nature of your marriage contract forms the foundation of the financial arrangement between you and your spouse, and it is important to understand how your marital regime affects your rights. The legal consequences flowing from your marriage contract affect almost all areas of your finances, both during your marriage and in the event of a divorce.
In community of property: If you are married in community of property, you and your spouse share a single, joint estate of which you are equal owners. The biggest drawback of this type of marriage is that you are jointly responsible for your spouse’s debt, including that which he incurred before your marriage. Further, your spouse can bind the joint estate through his actions which could lead to your joint estate being declared insolvent.
Out of community with the accrual system: This is considered the most equitable marital regime, although calculating the accrual in the event of divorce can be complex. If you are married with the accrual system, you and your spouse share equitably in the value of your respective estates to the extent that they grew during the subsistence of your marriage. In the event of divorce, the growth in each spouse’s estate is calculated and shared equitably between the two spouses. An advantage of this marital regime is that you are not responsible for any debt incurred by your spouse, but bear in mind that the debt of your spouse will ultimately impact the value of the accrual.
Out of community without the accrual: If you are married without the accrual, you and your spouse have completely separate estates and, if you get divorced, there will be no sharing of assets. This type of marriage contract can be prejudicial where one spouse chooses not to work or to be a stay-at-home parent because they have no income with which to build wealth.
Cohabitation: If you and your partner have chosen not to get married, keep in mind that living together, or cohabiting, confers no legal status on your relationship, and this can leave you financially exposed if your relationship comes to an end. No duty of supports exists between cohabiting couples which means that, should you end your relationship, your partner has no legal duty to provide you with financial support. The best way to protect yourself in such circumstances is to draft a cohabitation agreement that sets out the financial consequences of your relationship and how your assets will be divided should you separate.
Seek financial advice before getting divorced or separated
A common error made by spouses is to seek financial planning advice after their divorce or break-up, but there are significant disadvantages for doing so. Once you have signed your divorce settlement agreement, it is final and cannot be undone. If you suspect that your marriage is in trouble and could be headed for divorce, be proactive about seeking financial advice so that you can go into the divorce negotiations fully prepared. It is important that you know your rights when it comes to, for instance, claiming a share of your spouse’s pension interest, your spouse’s maintenance obligations, and your rights to any immovable property. It is also important that you understand the tax and CGT consequences that any division of assets might give rise to.
Have a financial profile of your own
Regardless of whether you work or not, ensure that you have a financial profile of your own which includes a well-managed bank account as well as at least one account in your own name. You need to make sure that, should your marriage come to an end, you have a financial history in your own name to fall back on. Also, ensure that your cell phone contract is in your name so that you retain control over your contract and phone number in the future. Similarly, make sure that your vehicle is registered in your own name as, if it is registered in your spouse’s name or in the name of his business, you could be left stranded if your marriage comes to an end.
Protect your credit score
If you are married in community of property, you and your spouse effectively share a credit record. This means that if your spouse is heavily indebted and/or does not conduct his banking responsibly, his behaviour could negatively impact your credit score. If you are married out of community, either with or without the accrual, you are responsible for maintaining your own credit score. It is very important that you look after your credit rating so that, if your marriage comes to an end, you have a sound basis on which to apply for credit such as, for instance, vehicle or home financing.
Keep an accurate budget
Keep a regular and accurate budget so that you know exactly how much is spent on items such as school fees, clothing, groceries, pets, household maintenance, and extra-murals. Most maintenance orders grossly underestimate the costs associated with having children, so keep accurate records and maintain a good filing system that can easily be accessed should the need arise.
Be careful of stopping work
If you choose to stop working, make sure that you fully understand the implications of doing so. If you do not generate an income of your own, you will find it very difficult to build wealth in your own name. As an income earner, you receive a significant tax incentive to invest towards a retirement annuity thereby securing your own financial future – and choosing not to work will rob you of this opportunity. If you and your spouse have agreed that you will be a stay-at-home parent, insist that you have an investment such as a unit trust portfolio set up in your own name so that you have access to money should you ever need it.
Any potential claim that you have towards your spouse’s retirement funding in the event of a divorce will depend on how you are married. If you are married in community of property, you will automatically be entitled to 50% of your spouse’s retirement benefit as it forms part of the joint estate. However, if you are married with the accrual system, you will need to claim a share of your spouse’s pension interest should you get divorced, and this value will be determined in accordance with Section 7 of the Divorce Act. The big risk arises where a stay-at-home spouse is married out of community with no accrual as she will have no claim to the member spouse’s retirement benefits and, if the marriage comes to an end, she could find herself with no retirement funding in place.
Understand the implication of property ownership
If you are married out of community of property without the accrual and your home is registered in your spouse’s name, this could leave you exposed in the event of a divorce as the house effectively belongs solely to him and you have no claim to a share of the property. Similarly, if you are cohabiting with your life partner and the property is in his name, you have no rights to the property and can be immediately evicted if your relationship comes to an acrimonious end.
Take charge of the household’s financial affairs
Many women find themselves trapped in unhappy and/or abusive relationships because they do not have the financial means to escape. As such, it is absolutely essential that every woman in a long-term relationship or marriage becomes actively involved in the joint finances at the very outset of the relationship and continues to co-manage financial matters throughout the relationship in the best interests of both parties.
One of the greatest risks facing women who are suddenly faced with a divorce that they didn’t see coming is being left financially helpless while the divorce is being finalised. Our law recognises this risk and, as such, provides a mechanism to assist spouses to apply for an interim maintenance order. This can be done in terms of either Rule 43 of the High Court or Rule 58 of the Magistrate’s Court with minimal legal costs involved. A spouse in this position can claim interim maintenance to cover the care of the children, providing maintenance for herself, enforcing certain payments such as the bond, school fees, and medical aid premiums. Remember, if you and your spouse are cohabiting, you do not have access to this legal mechanism, and you could be left financially high and dry which is, however, a risk you can mitigate through a well-constructed cohabitation agreement.
Even in the most amicable situations, divorce is never easy. But, fortifying your financial position and sharing financial responsibility with your spouse or partner throughout your relationship will place you in a significantly stronger position in the event that divorce happens.