Getting divorced is messy enough before you start dividing assets. In this article we look at a few things to keep in mind about your finances when you are going through the process.
1.Your marital regime will have a very big impact on how your assets and debt will be dealt with upon divorce
This is actually more important to keep in mind before you get married, because there is not much you can do about it by the time you get divorced. So, while it is quite uncomfortable to have the discussion when you are all starry-eyed and planning a wedding, it is really important to pick the right marital regime.
In community of property, often called ‘COP’ – each spouse owns half of every asset in their joint estate. This is clearly the most difficult situation practically because it’s not a case of you get the one car and I get the other. We each own half of each car.
Out of community of property – what’s mine is mine and what’s yours is yours. This may seem easy enough but, depending on the household finances, it may be difficult to remember and prove who bought the TV or the lawnmower.
Out of community of property, with accrual – while there is more to the calculations, the accrual system basically means that all assets and wealth obtained after the date of marriage, are shared equally if you get divorced. While not 100% without any issues, this is probably the regime that most advisors would recommend.
Nothing stops you from setting very specific rules in your pre-nuptial contract to enhance the above ‘standard’ arrangements. Your lawyer can guide you on this.
2.Now that your assets are divided, what about ongoing income? Is a spouse automatically entitled to income from an ex?
Fifty years ago, the question would be whether a woman can automatically expect maintenance from her ex-husband. The world was filled with disgruntled divorced men complaining about the ex taking all their income every month. Times have changed. The ability to claim maintenance from an ex is based on the financial situation of both parties while you were still married.
Whether it is the husband or the wife, if one individual was financially dependent on the other, he or she will be able to argue that a ‘fair amount’ of maintenance is due to them. The court will evaluate many factors before awarding an amount, including the assets and income of both individuals, so this is where a good attorney will be invaluable.
Child support will also be specified by the court, should the parents not share custody of the children equally. This could be in the form of a recurring cash payment from one spouse to another, but will also specify exactly how the larger childcare costs like medical expenses and education are to be shared between the parents.
3.What about my retirement savings?
Your savings accumulated in your pension fund, provident fund, preservation fund and/or retirement annuity will form part of your assets that will be considered during your divorce. The non-member spouse is entitled to share in these assets and the division of the investments will once again be guided by your marital regime.
The court will make a specific order to the fund that specifies exactly what the non-member spouse is entitled to. The non-member spouse does not need to wait for the member spouse to retire – he/she may request the payment of their allocated portion (according to the divorce order), the moment the order is granted. This is called the ‘clean break principle’.
If the non-member decides to take their benefit in cash, it will be tax payable. If they decide to transfer the benefit to a similar retirement savings vehicle in their personal name, the transfer will be tax free.
4.Do you have a claim against your ex’s pension/annuity income?
Divorce after retirement is not as uncommon as you may think. Many couples find it hard to adjust to the perceived loss of individuality. If your spouse is receiving a pension (be it from a pension fund or in the form of an annuity that you bought at retirement), you may feel that you are entitled to a part of that income after your divorce.
For many years, annuity income was almost disregarded as a specific item to consider upon divorce. The courts would consider whether either spouse is entitled to receive maintenance from the other and if so, it was irrelevant how that maintenance was paid. It could come from a salary, from investments, whatever. As long as the spouse received the specified amount every month.
The capital amount in your living annuity was always excluded, because technically it belongs to the insurer. Remember that an annuitant or pensioner does not have the right to withdraw their whole benefit in cash.
A May 2020 judgement in a court case put a new spin on this. The court found that the contractual right to receive an income from an annuity (or a pension from a pension fund), is actually an asset and must be included when calculating the accrual claim for a couple that is married with the accrual system.
5.What is the one thing that divorcees absolutely must remember?
You may think it is obvious and impossible for anyone to ever overlook, but don’t forget to change your will after your divorce. In fact, don’t wait until the divorce is final, get it done the moment you start the process to make sure you don’t forget.
More often than you may think we see clients who have been divorced for ages, but who haven’t updated their will. We can only imagine this is because it is one of those things that you mentally remind yourself to do…and then just don’t. Before you know it months or even years have passed.
Maybe this will motivate you: If you pass away more than three months after the date of divorce, and your will still nominates your ex-spouse as a beneficiary, the courts will assume that it was your intention to leave the specified assets to that spouse.
They will not guess whether there is a possibility that you just forgot to update your will. Your ex may end up with most of your estate.
If you pass away within three months of your divorce and you have not yet updated your will, the courts will treat your estate as if your ex-spouse passed away before you.
Ideally, your will should always specify what is to happen should any of your beneficiaries pre-decease you, but if not, the portion that was left to your now ex-spouse, will then be distributed in terms of intestate succession.
Hopefully, that will mean it will land in the hands of your children, but you’ll agree with me that it can get messy again if those children are minors.
Moral of the story – get the admin done. Check your will and any life policy beneficiaries when you start your divorce proceedings to make sure they are in order.