To-do list after saying 'I do'
WHEN you’re young and in love and, let’s say, newly royal – the extent of your financial concerns after getting married may be finding out where your new grandmother-in-law hides the silver.
For the rest of us, the combination of money and matrimony can be much more problematic. Getting it wrong from the start may dent your chances of staying together, and lead to all sorts of complexities later in life.
1. Sort out the legalities
If you had the wedding before agreeing to a marriage contract, you are married in community of property (COP).
This means you have a joint estate – all your assets and debts are thrown together. In case of death or divorce, you (or your estate) are entitled to exactly half of everything. (Some assets that you may have inherited from other parties could be excluded.)
You won’t be able to apply for credit without your spouse’s consent and his credit record will also be taken into account. You will be dependent on your partner’s goodwill when managing your own finances. In case of death, the surviving spouse will have difficulty accessing assets until the estate is wound up.
But the biggest danger of being married in COP is insolvency – if your partner runs into financial difficulties, your assets will be sequestrated as well and you are deemed to be co-responsible for all liabilities. This can be devastating to your own finances, and it may take years to clear your name and get your credit standing in order.
If you want to avoid this, you may apply to the court to change to being married out of community property. You will have to prove that you were unaware that you needed an antenuptial contract and intended to be married out of community property. You will also have to give notice to all your creditors and convince the court that no other person will be prejudiced.
Going through this process may leave you with a lawyer’s bill of around R10 000.
2. Update your policies
Make sure that your will is updated with your new spouse’s details and that he or she is named as beneficiary on your life policies; also on your employer’s group life cover. This is particularly important if you were married before, or named your previous partner.
3. Talk about money
Financial conflict tops a number of global surveys as the leading cause for divorce. The key to avoiding this is by talking about money, says Gregg Sneddon, a financial adviser at planning firm The Financial Coach.
Couples find it hard to communicate about finances, because it triggers such powerful emotions – particularly fear.
If your spouse is not keen to discuss financial matters, avoid using "So exactly how deep in overdraft territory are you?" as an opener.
Start instead by talking about your common goals and dreams, and how you would be able to achieve it financially. This can open up more opportunities to explore, such as how you can work together to shift your debts, how to curb household spending, etc.
Try to establish a regular time to talk about your finances– without emotion, dragging past regressions into the conversation or blaming the other person. If a couple has very different attitudes towards money and spending (your idea of indulgence is buying a double cappuccino, his a state-of-the-art cappuccino maker plus a strip of land to grow his own coffee beans) this is particularly important.
4. Don’t cheat
A new catchphrase – financial infidelity – is gaining traction. A recent US survey showed that almost a third of couples lie about their finances, particularly about hiding cash or debts, or maintaining a secret bank account.
“Maintaining a secret slush fund does not provide a good grounding for a relationship,” says Sneddon. It goes without saying that honesty - particularly about money – is key to sustaining a healthy bond.
5. Remain equals
This is one of the most difficult challenges – particularly later on when one of you falls behind in the income stakes, says PSG Konsult financial planner Max van der Wath. This can happen if you lose your job, or when one of you scales down work to spend time with the children.
Resentment that builds up during this time can put immense strain on relationships. One of the biggest problems is selfishness, he thinks. “No one should beg for money.”
A couple needs to do their planning so that their tax-free income on retirement is maximised, he says.
Therefore the retirement contributions of both spouses should be kept up. It often happens than when the woman stops working, her pension pay-out is used to settle debt and to help with the loss of her income, Van der Wath says.
When she retires, she is in a much weaker position than her husband – even if she resumed working later in her life – because she lost her capital and all the contributions she would have made when she was employed.
Also take into account tax considerations. If her husband continued working and retired today at 65, the tax threshold is R93 150 and the interest exemption R33 000. (Medical expenses can also be deducted.)
He could then receive R126 150 a year in the form of a pension and interest income without paying any tax. But if the correct planning was done and their retirement savings and other investments had been made on behalf of both the husband and his wife, the tax-free amount they could have received would have been double - R252 300 (R21 025 a month).
Van der Wath says couple usually does not take this into consideration. The main breadwinner’s retirement savings are usually one big amount and most of the investments are made in his name, while the partner has fewer investments.
A practical way to avoid this problem is for the retirement savings of the person who quits work to be maintained in a preservation fund (and not paid out in cash). The person should keep up pension contributions to a retirement annuity or a share portfolio.
“This may be difficult, but at retirement everyone will benefit and the person who sacrificed work does not have to sacrifice financial freedom too,” says Van der Wath.
6. Don’t be sandwiched
A recent survey showed that more than a fifth of South Africans now have to support their children as well as their parents. This so-called sandwich generation is squeezed between the needs of both offspring and parents, while trying to hold down a job and saving for retirement themselves.
With most South Africans not having an adequate pension, the stark reality is that you may have to take care of family – even those not related by blood. Caring for your in-laws, which may mean sacrifices, while your own children are still at home (a recent SA study showed that 70% of 18- to 24-year-olds stay with their parents) can test the most solid of relationships.
There are no easy answers in these situations. But it is important that you keep on communicating and get an independent view of your finances from an accredited adviser, to make sure that you are putting enough away for your own retirement.
7. Keep your bank accounts separate
There should be spaces in your togetherness, the writer Khalil Gibran said. He was, of course, referring to your bank accounts.
It is critical that you maintain your own account, says Sneddon.
There are currently no bank accounts that allow for equal account holders. A bank account is always in one person's name, while the other person has signing rights.
The problem is that the person with signing rights won't be able to build up a good credit record, since they don't have a bank account in their name. This makes it very difficult to get credit. And if you should split up, the primary account holder can withdraw everything without alerting the person with signing rights.
And if your spouse owes tax money, the SA Revenue Service can take money from the account.
The bank will also freeze the account if the account holder dies, leaving the person with signing rights without any access to funds, says Sneddon.
The best would be for each partner to have his or her own account, with a joint account for household expenses. Preferably, if both of you work, each should contribute proportionally to their salary. If you earn twice as much as your spouse, you should contribute double to the household expenses.
Thank you editor.
Very good advice, especially about contributing proportionally to household expenses.
Very useful article.
Please tell ever body you know to investigate and invest in an ante nuptial contract (marriage contract) before they get married. If couples are worried about sharing they can have the contract on the accrual basis which means that assets earned while married and in essence owned jointly but all the issues regarding insolvency etc are covered.
Be certain to have individual wills and to name the surviving spouse as executor or at least co-executor in both wills. There is no law with regard to this. The master may require a formal appoint of assistance to any spouse not demonstrating sufficient ability.
I have recently done an analysis of the average time taken to distribute estates in SA. On average professional executors are taking more than 12 months to distribute estates. In my opinion 90% of estates should be finalised within 4 months. The only possible reasons for this delay can be the will or inefficient executors. Spouse as executor enables the spouse to check up on the process.
Such delays prejudice heirs and benefit banks and perhaps others.
Have a will that ensures heirs have the right to choose assets to make up their bequests so avoiding much of the delay said to be as a consequence of liquidation assets.
Have a will that only need be changed when you change a beneficiary or bequest. The will should cover every other eventuality.