According to a March 2021 Forbes Advisor article, women spend more time researching their investment choice and are more likely to take on appropriate levels of risk with their investments than men, resulting in better investment outcomes. Their research also found that women are less likely to chase ‘hot tips’ and, as such are more likely to hold investments for the long term.
Women are also more likely to stay calmer in market downturns which protects them from locking in their losses. That said, while women tend to be better investors which sets them up well for the future, there are certain things that can weaken women’s financial positions and leave them financially prejudiced.
An inappropriate marital regime
Very often, marrying couples pay little attention to their marital regime and this often results in them being married in community of property, which is the default marital regime if no ante-nuptial contract is signed. This type of marital regime can be prejudicial to the one spouse where the other spouse is heavily indebted. This is because, when marrying in community of property, all assets and liabilities of both spouses are joined to form one common estate. The problem with this is that all debt, including debt that was incurred before the marriage, is included in the joint estate. So, if your spouse was heavily indebted at the time of marriage, you would effectively be responsible for 50% of that debt, plus any further debt that he incurs during the marriage.
Further, because you share a single estate, your spouse can bind the common estate through his actions which could lead to the joint estate being declared insolvent. While the Divorce Act does make provision for the forfeiture of assets by one party in favour of the other where it finds that one party unduly benefited in relation to the other, the onus would be on the spouse bringing the claim to prove that the other spouse benefited unduly.
If you are married out of community of property and have expressly excluded the accrual system from your ante-nuptial contract, you will only be entitled to those assets that are registered in your name should your marriage come to an end. While this may be a suitable property regime where spouses earn similar incomes, a stay-at-home mom could be heavily prejudiced by such an arrangement. Without an income, a stay-at-home mom has no means with which to build wealth, save for retirement, or protect her financial future. In the event of a divorce, the stay-at-home mom could be left with nothing, although she would be able to claim maintenance in respect of the children.
It is important to note that there is no such thing as a ‘common law partnership’ in South Africa, and no legal status is conferred on couples who choose to live together without getting married. Cohabiting partners have no legal duty to support each other financially which can leave the economically weaker spouse prejudiced when the relationship comes to an end.
If you’re planning to be a stay-at-home, give careful thought about how to protect your financial future. Specifically, keep in mind that if you leave formal employment to raise a child, your retirement funding will be put on hold for the period that you choose to stay at home. At best, your retirement savings will be put on hold but, if you need to withdraw your retirement savings to help with the costs of having a child, you could end up losing the capital you’ve accumulated meaning you will effectively start from scratch when you do start earning again. Going from generating your own income to being fully dependent on your spouse for money can be a huge mental mind-shift and can also affect the power balance in your relationship. If you plan to stop working while you raise children, it is always advisable that you and your spouse have open and honest communication about how it will work, and how your financial future can be protected if the relationship comes to an end.
Being dependent on your child’s maintenance payer
If you’re a single mother, being dependent on your child’s father to pay monthly maintenance can leave you in a precarious position, especially if he is an unreliable payer. Unreliable maintenance payments can not only leave you indebted and struggling to pay monthly bills, but could also result in you having to waste time in the maintenance courts which, in turn, can affect your career and income. Adequate emergency funding is important, especially in such circumstances, and to protect yourself against the risk of late payment, it is advisable to keep three months’ worth of maintenance payments in an easily accessible account. This will afford you some protection against future default payments and buy you time to approach the maintenance courts for relief.
Relying on a spouse or partner for your retirement plan
Unless your spouse earns an enormous amount of money, it will be very difficult for one income earner to save for a joint retirement. Do not assume that your spouse or partner is ‘taking care’ of your retirement. Firstly, funding for a comfortable retirement takes careful planning, time, and a commitment to regular saving. Secondly, if you’re earning an income, there are significant tax benefits for contributing towards a retirement fund, and it makes financial sense to invest in your own name. If your marriage comes to an end through divorce, you may have a claim for a share of your spouse’s pension interest, being a portion of his retirement funds, but it is doubtful that a share of your ex-spouse’s retirement savings will be sufficient to secure your financial future.
Lastly, keep in mind that in general women live between two to five years longer than men which means that women effectively need more retirement savings than men. If you rely on your spouse’s pension income in retirement, remember that in the event of his death, you could receive a reduced spousal benefit which may not be sufficient for your needs. A prudent approach is for you and your spouse to undertake a joint retirement planning exercise to ensure that you are each maximising your tax deductions by investing towards a retirement fund that is appropriate for your needs, and that you remain actively involved in the process.
Putting retirement savings on hold
Many women who choose to stop working during their child-rearing years have no choice but to put their retirement funding on hold, which can have detrimental effects on their retirement funding. Stopping your retirement fund contributions, even for a couple of years, interrupts the power of compounding and will ultimately delay your wealth creation. If you’re planning to stop working and contributing towards your retirement fund, be sure to build this into your financial plan so that you can fully understand the effects on your retirement planning and map a way to catch up your retirement savings once you start generating an income again.
Not protecting your income
If you generate an income, it is important that you protect your earnings through a comprehensive income protection benefit using a reputable insurer. If you are temporarily or permanently disabled as a result of illness or accident, this type of policy will pay out your nominated income until you reach a pre-determined age which is generally between age 60 and 65. If you find yourself in a position where ill-health or disability renders you incapable of working, you will have the comfort of knowing that you have an income to fall back on and that you will not have to be financially dependent on your spouse or family in such circumstances.
If you have stopped work in order to have a family, bear in mind that you may not be eligible for an income protection benefit as you would not be able to prove a lost of income in the event of disability. This does not mean that you will not earn an income again at some point in the future though. In such circumstances, it may be beneficial to put a capital disability benefit in place which would pay out a lump sum benefit in the event of a disability.
Not being provided for in your spouse’s will
While a will is a private and confidential document which your spouse is not obliged to disclose the contents of to you, not knowing if you have been adequately provided for in the event of his death can leave you in a vulnerable financial position. As a result, we always advise couples to undertake a joint financial planning exercise that includes a transparent estate plan to ensure that each partner is adequately protected in the event of a tragedy.
Importantly, the nature of your marriage contract will affect your estate planning and will need to be taken into account when drafting your respective wills. If you and your spouse are married in community of property, each spouse can only bequeath half of the joint estate in their respective wills. This only becomes a problem where your spouse bequeaths his share of the joint estate to someone other than you as this may result in the forced sale of property or realisation of assets in order to pay the nominated beneficiaries. Similarly, if you are married with the accrual, things can become complicated if your spouse leaves assets to a third party.
If your spouse does not provide adequately for you in terms of his will, you may be able to bring a claim against his estate for maintenance in terms of the Maintenance of Surviving Spouses Act although this could take time, and leave you cash-strapped while you await a court order. To ensure that both you and your spouse are protected in the event of either of your deaths, the first prize is to ensure that there is sufficient trust and transparency in your relationship and that you can develop a workable estate plan together.
Investing too conservatively
According to numerous research findings, women are generally more disciplined savers than men and are less impulsive when it comes to investing, although they tend to be less confident in their own abilities. Importantly, women tend to invest more conservatively than men which can, in turn, affect their ability to generate wealth over the longer term.
Shying away from growth assets such as equities in their portfolios in favour of cash and cash equivalents can be unprofitable over time as inflation gradually erodes the purchasing power of one’s investments. Being cautious is good, but investing too conservatively – especially if you have a long investment horizon – can leave you inadequately funded for retirement even after years of saving.
Having a long-term investment plan in place and a well-diversified investment portfolio will help to ensure that you take on the appropriate level of risk and that you remain invested according to your retirement objectives.