• Kerry Sutherland

Your relationship could be your biggest financial risk

In love today, married tomorrow, but divorce is happening ever more regularly, and your relationship could place you at financial risk.

Despite misconceptions, women continue to be at a financial disadvantage, earning less for the same jobs. Older women also are less likely to have substantial retirement savings than men. Kerry Sutherland, senior wealth manager at Alexander Forbes says that while many people perceive women generally ‘do well’ when they get divorced, this is in fact a misconception. “The average monthly salary in the formal non-agricultural sector according to Statistics South Africa’s Quarterly Employment Statistics is about R20 855 p/m, and a divorce will see a woman paying all household running expenses with little to no financial support from her newly ex-husband, simply because he’s unable to do so. It is mostly in the small high net worth sector of South Africa that women are better off after a divorce but this is far from the norm.” Sutherland says for this reason, the average woman should carefully consider a divorce, even if she’s extremely unhappy in her marriage, simply because of the financial risks she might face.

All woman should always understand budgeting and investments. “Believing in a ‘happily ever after’ is far too great a risk. Relying heavily on the other spouse for financial support is always a risk, although it is more common with women believing that their husband will give them and their children financial support forever.”

Statistics South Africa’s most recent figures showed that four in ten divorces (44,4%) of the 25 326 in 2016 were marriages that lasted for less than 10 years. With many incidences of maintenance defaulters, a woman must always look after herself financially with her own savings. For the man who marries a woman for her money, a well-structured contract will protect her against any ill deeds.

One way to avoid this risk is to ensure one’s marriage contract is correctly set up. “If she wishes to keep all the assets she accumulated over the years before marriage, out of the marriage, then she must get married out of community of property. If she believes that the assets she accumulates during marriage should not be split 50/50 after a divorce, then marriage out of accrual is recommended,” Sutherland says.

“In recent years I am seeing the scenario where the financial position of a woman who was primary breadwinner pre-divorce, is often better post-divorce, more often.” During the marriage, the ex-husband often earned less, was unemployed or battled to hold down a job for a long period of time. After divorce, it is unlikely that these women would receive any assets from her ex on divorce. In many instances, she would have to pay her ex half of what she had accumulated during her marriage, including half her retirement fund. However, in this scenario, the woman is often better off post-divorce because prior to that she was paying most of the bills and will no longer have to subsidise her husband. In addition, her future savings will be for her retirement only.

To deal with running a household on a single income, a woman might have to relocate to a smaller house or downgrade her car.

“Women who have taken a break from work to bring up their children should upskill and get back to work as soon as they can. This can be difficult after a divorce when one’s confidence could have taken a knock.” The break in earning also means lost years of retirement contributions and growth. “Upon returning to work, monthly contributions to retirement funds must be increased, as this is the most tax effective and cost-effective way to save.”

She advises careful budgeting, avoiding debt such as personal loans or credit cards can help, and says that if one has investments they should not be afraid to take on equity as over time this will compound at a much higher rate than a money market fund or fixed deposit.

To decrease reliance on maintenance payments, Sutherland recommends ensuring as low as possible living expenses. “You can then save a portion of the maintenance and preferably invest it, so you have a nest egg when the maintenance stops.”

It is extremely important for a woman to have financial independence - not only will she have more options to get out of a potentially miserable marriage and have a better life post-divorce, but she will also have more control over her finances and an understanding of them. “Marriages don’t always end in divorce, they do end in death of a spouse, and if you are one of the lucky women to have a beautiful marriage, overreliance to your husband’s financial contribution could be just as bad if he passes on early, perhaps even more so.”