Know how to deal with the financial implications of divorce
In a recent social media post, radio and TV personality Masechaba Ndlovu announced her separation from her husband Vusi Ndlovu, shocking the nation with the saddening news. The star took to Instagram to post a heartfelt message detailing her decision and calling Vusi the “man of her dreams”, and her “ride or die”. Truth is, nobody gets married with the intention to divorce their spouse. But the harsh reality is that 40% of marriages end in divorce before the 10 year anniversary. The latest figures from StatsSA reveal that 25 326 divorces were granted in South Africa in 2016.
One of the thorniest aspects of divorce is its financial implications. David Thomson, Senior Legal Adviser at Sanlam Trust, says divorce is an extremely traumatic event on its own and financial considerations play a huge part. People should, therefore, make sure that they carefully consider the bigger picture when it comes to evaluating their financial situation and making decisions.
If you get divorced and are legally entitled to a portion of your spouse’s retirement money, take care before you think of this money as a ‘windfall’ to spend. Instead, remember that it was initially intended to provide a comfortable retirement, he warns.
“For starters, where just one person was the breadwinner in a household, divorce will often result in the other person now having to find a job. These scenarios mean divorce often accompanies difficult decisions about where you are going to live – whether to buy a new home or to rent for a while.”
You have to ask yourself what your retirement will look like if you took the money and bought a property. Thomson says some fortunate people buy a house, raise the children, sell it at a profit in future and then plough that money back to their retirement savings. But this takes huge discipline to actually carry out.
“Whatever decision you make, make sure that you base it on a holistic picture which takes into account your living expenses today and your retirement needs in future. Don’t try to guess what your retirement needs are going to be – get a professional financial adviser to calculate this for you,” says Thomson.
When balancing your immediate needs with retirement savings, the other critical issue to consider when you get divorced is how to boost your retirement provision, especially if you intend to enter into a new relationship. Divorced people often have to redouble their savings efforts to make up for the divorce settlement withdrawals and the fact that they’ve missed out on the effect of compound interest, says Thomson.
“You may need to rethink your whole retirement philosophy because the retirement plans you had with your ex-spouse may not be realistic now – given your new financial realities. This is especially true if you find yourself in the ‘silver-hair divorce’ situation which is now a growing trend. When you divorce later in life, you’ll need to be more conservative in your investment approach.”
“On the other hand, people who divorce at a younger age have more time to ride the markets and they can therefore be more aggressive in their approach. When you are still young; you can consider a portfolio which is geared in favour of equities rather than cash for example until you approach retirement,” concludes Thomson. Unfortunately, the Ndlovu’s won’t be the only high profile couple to split this year but hopefully, they’ve given their financial situation the careful consideration it requires.