MONEY CLINIC | What are the financial considerations of divorce?

• For more stories, go to the News24 Business front page.
• Have a money problem that needs solving? News24 Business can help! Send your question to editor@fin24.com 

Suppose you're contemplating or going through a divorce. In that case, getting caught up in high emotions becomes easy, and your key concern quickly becomes extracting yourself from a once-happy situation. Although you know financial hurdles are ahead, these are probably not your priority.

But not so fast. According to Simon Dippenaar, founder and managing partner at Simon Dippenaar & Associates, while it may sound callous, your finances should be high on your list of key considerations. 

"Your lawyer will look after your interests for you, but it helps if you have a degree of financial literacy when it comes to your divorce agreement.

"The decisions you make now can’t be undone or can only be reversed in future with further cost and disruption," Dippenaar says.

Dippenaar looks at what do you need to know about finance and divorce - and explains the terms relating to divorce and what it means: 

Matrimonial regime

Let’s look first at what your matrimonial regime means for divorce and your finances. If you signed an antenuptial contract, or ANC, are you familiar with its conditions? If you have an ANC, you are married out of community of property. But that could be with or without accrual. The regime that applies will impact how your assets are divided on divorce.

Marriage in community of property: If there is no antenuptial contract, the marriage is automatically in community of property. All assets of both parties are joined into what is called a "common estate", which is owned equally by both spouses. Everything earned, bought, inherited or acquired in any way during the marriage becomes part of the common or joint estate, including money in either spouse’s bank account.

Antenuptial contract: An antenuptial contract (ANC) sets out the rules and conditions that will govern the division of assets during marriage and divorce. ANCs don't apply to marriages in community of property. Marriages without community of property may be with or without accrual.

Marriage out of community of property, without accrual: Each person retains ownership of the property they owned before the marriage and all property accumulated during the marriage. They also hold sole responsibility for any debts incurred before or during the marriage. Each party may dispose of their estate in a will as they choose.

Marriage out of community of property with accrual: This regime is a bit more complex and only becomes significant on divorce. The difference between the net increases in the respective estates during the marriage is divided equally between the two parties, according to a standard calculation. Certain assets are excluded, according to the terms of the Matrimonial Property Act. 

Pensions

After the marital home, a couple's pension is probably the most significant asset. If both spouses are professionals and have retirement planning vehicles, pension splitting may not play a big part in divorce proceedings. However, where one spouse earns significantly more than the other and has substantial retirement savings, and the other spouse does not work or is a low earner with limited or no pension arrangements, then calculation of pension interest becomes an important aspect of divorce and your finances. What do you need to know?

Pension splitting: Where a couple is married in community of property, the non-member spouse can claim up to 50% of the retirement fund assets at the date of the divorce.

Pension interest: Pension interest refers to the pension fund benefit at time of divorce and the entitlement of the non-member to a portion of that fund, where one spouse is a member of an occupational or personal pension scheme and the other is not, or where both spouses are members of their own schemes but there is a significant discrepancy in value.

Clean-break principle: The clean-break principle describes the right or entitlement of the non-member spouse who is married in community of property to receive immediate payment or transfer of the portion of the other spouse’s pension interest allocated to them upon divorce. In the past, the non-member spouse had to wait until the member spouse retired to receive any benefit. The clean-break principle deals with pension entitlement at time of divorce.

Maintenance

There are different types of maintenance in divorce cases. There may be interim maintenance, temporary or rehabilitative spousal maintenance, and child maintenance.

Interim maintenance (Rule 43): Where a divorce is contested and taking a long time to conclude, one or other spouse may apply to the court for a Rule 43 interim maintenance order. Rule 43 maintenance is designed to ensure interim arrangements for a number of issues, not only financial. It can provide interim maintenance for the minor children and in some cases one of the spouses until the divorce is finalised; a contribution towards legal costs; interim care and contact with the child/children; and interim custody of the child/children.

Spousal maintenance: Whether husband or wife, if one individual is financially dependent on the other, they will be able to claim a "fair amount" of maintenance. The court will evaluate a number of factors before awarding an amount, including the assets and income of both individuals.

Rehabilitative maintenance: Rehabilitative maintenance refers to a certain amount of money payable to a dependent spouse following divorce for a short, determined period of time to allow that person to obtain education or new skills or have time to look for alternate work and become financially independent.

Child maintenance: Under South African law, children have the right to receive financial maintenance. Both parents must provide financial support for a child, whether married or not. Maintenance is not tied to contact, and a parent may not withhold maintenance if they lose contact with their child. Maintenance amounts must be negotiated and finalised according to the Maintenance Act 99 of 1998 and the Children's Act 38 of 2005. Each parent's respective payments depend on how much they earn and consider the child's education, care and upbringing cost. Maintenance orders are orders of the court. Failure to meet their obligations is a criminal offence.

Health and end-of-life considerations

The very first thing you must do in divorce is updating your will. The court allows a small grace period following divorce, whereby if you neglect to update your will and die within three months of divorce, your spouse will not inherit from you. But three months goes very quickly, and we advise clients to prioritise updating their will in the divorce process. You also need to look at life cover and health insurance provisions.

Will: After three months, if you have not amended your will, the courts will assume that you wanted your ex-spouse to inherit from you. Unless you want that to happen, bring your will up to date. Your will is also important if you have children. If you are the sole legal guardian of your child, it is important to name a guardian. You may want your parents or sibling to look after your child if you are not around, but unless that relationship is stipulated in your will, there is no guarantee the courts will come to the same conclusion.

Life cover: Once you are divorced, unless required by the divorce settlement, you are unlikely to want your ex-spouse to be the beneficiary of your life insurance on your death. The value of your assets and liabilities will be different, so it’s time to reassess your life cover. If you have children, both you and your ex should have adequate life cover to meet the needs of your children, should you die before they reach majority.

Healthcare: If you are on your ex-spouse’s medical aid, unless the divorce order mandates that to continue, you will need to register as the principal member of a medical aid in your own right. If you are the principal member and your spouse is coming off your plan, ensure your account is brought up to date with your medical aid provider. Either way, it’s a chance to review your healthcare needs in terms of health status, chronic conditions, affordability and accessibility to networks. Don’t be tempted to cancel medical cover in the face of a tight budget. Ensure you at least have basic hospital cover. This will protect you in case of an unforeseen event and ensure your membership is uninterrupted. If you and your ex-spouse had joint gap cover, take out a policy in your name. Avoid interrupting your membership or you may be subject to a waiting period if you want to rejoin later.

Explanations may be edited for brevity and clarity.