Divorce is an extremely traumatic and disruptive experience. Apart from the legal implications and emotional turmoil, there are also important - but often overlooked - financial aspects that need to be considered, PSG Wealth discusses ten of these below.
Re-write your ending
In terms of the Wills Act, divorcees have three months from the date of divorce to amend a last will and testament, removing spouses as beneficiaries or estate executors.
Fact: Failing to do this will mean a former spouse will have claim to an estate as indicated in the will that was valid during the marriage.
And the nominees are…
Many people believe that by simply changing beneficiaries in their will, that these will carry through across any- and all policies. Unfortunately, this is not the case and could result in serious complications for the divorced parties involved, further down the line.
Fact: No grace period exists to make beneficiary changes to products such as life policies, retirement funds and group risk benefits.
Dividing debit orders
Uncoupling financially means freeing yourself from responsibility for your former spouse’s debit order payments on short-term insurance, risk premiums, retirement annuity contributions, banking fees, personal or clothing accounts, maintenance orders and the like.
Fact: These will continue to run unless you instigate cancelling debit orders, and some accounts might require a few days to cancel, meaning you may even need to apply for a refund.
Separating short-term insurance
Spouses typically insure their individual assets under one short-term insurance policy. This is possible as an insurable interest exists between spouses, but this falls away at divorce, whereby each former spouse becomes responsible for his/her own short-term insurance policy.
Fact: This is an opportunity to relook your insurance needs. Consider the full replacement cost of your goods in today’s value, as they may have increased since you initially insured them as a couple, or over the years, you may have forgotten to accurately adjust the value.
Moving on
The “risk address” (the address at which any insured assets are located/stored) has to be changed as soon as one of the spouses move out.
Fact: It is essential to let your short-term insurance adviser know of a change in the risk address, even if the final divorce order has not been granted.
Making sense of maintenance
A maintenance order in favour of one former spouse usually terminates at the death of the other or at such a time that the spouse receiving maintenance re-marries. However, if agreed to by both parties, maintenance payments may continue even after the death of the responsible spouse. Meanwhile, maintenance orders in favour of minors or dependents usually continue after the death of the maintenance payer. These payments will take the form of a claim against the deceased’s estate and can drastically reduce the inheritance of a second spouse or other beneficiaries. It should therefore rather be provided for separately.
Fact: Some insurers offer life cover that does not pay a lump sum amount but monthly annuities, which can be the same amount as the monthly maintenance ordered.
Retirement funds
The Divorce Act makes provision for the division of a member’s pension interest at divorce. However, this also depends on what sort of marriage contract was entered into, and if it was in- or out of community of property, etc.
Fact: If your pension interest is divided and a portion assigned to your former spouse, there may be a shortfall in your retirement provision. Avoiding this will be an important part of working towards building and securing your own future.
Reviewing risk cover
Your needs when it comes to life and/or disability cover will most likely change after divorce, and where possible, ownership of existing risk policies must be “taken over”. Where a policy is ceded to a former spouse as a result of a divorce order, the proceeds will remain exempt from capital gains tax.
Fact: Establishing whether it is necessary for the cession of a policy to be made an order of court is important, as well as if your risk cover still suits your needs post-split.
Banking on yourself
If you had a joint bank account with your former spouse, you will have to open a new bank account in your name only.
Fact: You can choose the right one with the right benefits and reasonable fees for you.
Taking care
If you are not going to be an adult dependant on your former spouse’s medical aid, you will have to get your own medical cover.
Fact: Joining a new medical aid scheme will require between one and three months’ notice of cancellation of membership with a previous medical scheme, so keep this timeline in mind.
One does recover from divorce, as difficult as it can be. Consulting with a financial adviser can go a long way to following the required steps, without making emotional decisions that could further impact the next phase of your life.
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