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The financial costs of a divorce

My Marriage

The financial costs of a divorce

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Going through a divorce can be extremely tough emotionally, but it can take a huge toll on your finances as well. Truth is nobody gets married with the intention to divorce their spouse. But the latest figures from StatsSA reveal that 25 326 divorces were granted in South Africa in 2016. The harsh reality is that one in four marriages in South Africa end in divorce before the 10-year anniversary.

There are typically two types of divorce in South Africa: the contested or opposed divorce, which can take two to three years to finalized. And the uncontested divorce, which is much simpler, quicker and cost effective. How you divide your assets with your spouse will depend on which marriage contract you have – either in community of property (where you split your assets and debts equally) or out of community of property (where “what’s yours is yours and what’s mine is mine”) either with or without accrual.

During a divorce, it is important to realistically focus on your financial situation since doing so will give you a sense of control over your life, which in turn can reduce your stress level. Your financial situation can be viewed in four categories: assets, liabilities, income and expenses. The categories discussed in this article are by no means exhaustive. You and your spouse may have other financial commitments to value in addition to these. That’s why it’s important to get professional legal support.

Home and pension

It’s in your interest to try to agree urgent, short-term financial matters with your ex-spouse. If you can’t agree, think about what you can do to protect your position and take legal advice as soon as you can. If the family home is owned in your ex-spouse’s sole name, you can also apply to the court for an injunction to stop your ex-spouse from disposing of, transferring or selling assets if this would prevent a fair settlement.

One of the first financial burdens is the separation of one household into two. Trading a share of a spouse’s pension for the marital home is one of the most common mistakes divorcing people make. Even though the value of the house might be equal to the value of the pension at the time of divorce, they are apples and oranges. A house requires income to pay for repairs, maintenance and improvements; a pension, however, produces income without costing income. A 50/50 division of assets may sound equal, but it may not meet your long-term needs. It’s not how many assets you have – it’s what you can do with the value of those assets that matters most.

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.

At divorce, debts do not part

Generally, the person who keeps the property will be expected to pay the mortgage or debt related to that property. Does this mean that the other spouse has no financial obligation for a joint debt? Absolutely not. Even if the spouse who assumes responsibility for the property pays the existing mortgage, both spouses will still be obligated to pay the debt. The divorce decree cannot terminate your financial obligation to your creditor. That is why most people choose the option of selling the house to settle the debt owed to the bank.

Credit cards and personal loans are another problem area. Do you know the balance on the cards? If you have joint accounts or loans with your ex-partner, especially if the breakup isn’t amicable, you should contact your bank, credit card and other providers to explain what has happened. You can instruct them to stop your ex-partner running up any new debts or withdrawing funds. Freezing the accounts will affect you both so make sure you think about this carefully. You’ll also need to make agreements to ensure that any joint bills can still be paid.

Child support

When it comes to maintenance, the law is straightforward. It is in the application of the law that difficulties lie. One of the basic principles of child maintenance is that the extent of the financial obligation is based on the standard of living, income and means of the person/s obliged to pay. The obligation does not rest solely on the father; it rests on both parents, according to their respective means. The fact that the father can adequately support the child on his own does not mean that the mother can avoid contributing. Once a child has reached the age of 18, a parent cannot claim maintenance on their behalf. The child must institute action in his/her personal capacity.

Spousal maintenance

Although women and men are equally entitled to seek maintenance awards, in practice, for historical reasons, the majority of cases at present involving maintenance are brought by women. For this reason, the discussion that follows usually alludes to the woman as the one seeking maintenance. One day in the future, you will find that it could just as equally be the ex-husband seeking maintenance from his ex-wife.

Neither spouse is automatically entitled to spousal maintenance on divorce. Our law favours the ‘clean break’ principle, which basically means that after a divorce the parties should become economically independent of each other as soon as possible. The court, however, does have the discretionary power to award spousal maintenance if necessary.

Taxing times

Divorce can also come with big tax bills. People are not often aware that there are tax consequences for selling certain assets. Often one spouse leaves completing the tax returns up to the other in the division of household labor. Each spouse should keep copies of joint tax returns. We recommend that you keep returns for at least the last 5 years; in addition, you may need records to calculate the base costs for any assets that you keep. It’s important when negotiating a settlement that you understand the tax implications.

Get financial advice as well as legal advice

Many people decide they want help to legally end their marriage or civil partnership, even if only for initial advice. Financial advisers and accountants can help with any financial aspects and legal advice can be sought from a variety of specialists including mediators and solicitors. Post-divorce you should sit down with your financial adviser and review your revised circumstances. You will need to reconsider all of your financial goals and establish how you will now attain them. This means reviewing your pension, life assurance and income protection assurance arrangements as well as assessing what your revised borrowing ability is. The likelihood is that, whilst you may have similar aspirations, you will likely be forced to realign your expectations.

Related: The Prenup (Ante-nuptial contract) explained

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Sonwabile is a Regional Wealth Manager at Inkunzi Wealth. He regularly comments about money-related matters on various newspapers, radio and television. Sonwabile runs a popular Facebook Page (Ask Sonwabile) that tackles individual questions about money and wealth.

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