DM168

THE FINANCIAL WELLNESS COACH

How to recalibrate your finances when going through a divorce

How to recalibrate your finances when going through a divorce

When you get divorced, there is a very good chance that your disposable income will be less than it was when you were married.

Question: My husband and I are getting divorced. What advice can you give me on what I should look out for when it comes to my personal finances?

Answer: Divorce is a time of massive change. Besides the emotional issues you must deal with, there will be massive financial changes.

You and your partner were on a particular financial trajectory and now that has come to an end. There will be less available cash, as your combined basic living costs will increase. The two of you, for example, will no longer be living in one dwelling, so costs such as electricity and rent will double. You must recalibrate your finances.

Budget

The first thing to do is to draw up a budget. As you will no longer have two incomes coming into the same household, your expenditure pattern will be different. It is rare that people can maintain the same lifestyle immediately after a divorce.

You need to understand how much will be coming in, adapt your lifestyle and manage your expenses accordingly. I have an easy-to-use budget spreadsheet that I can send you if you have not drawn up a budget before.

Protect your children’s income

You then need to check that your children will be financially fine should anything tragic happen. Check that you have sufficient life and disability cover to ensure that they will be looked after if you are no longer around or are unable to work.

If you are receiving maintenance payments, check that there is risk cover in place should the payer die or become disabled.

Retirement savings

Your partner is entitled to a share of your retirement savings and you are entitled to a share of theirs. If you can, avoid the temptation of taking this as a cash benefit. Not only will you pay tax on this, but it could also create financial problems in the future when you may not have sufficient retirement savings.

I would recommend that you invest the proceeds in a preservation fund. You will not pay any tax on the money and you can make one withdrawal from this fund should you run into financial difficulties later.

Change beneficiaries

The beneficiaries of your policies and retirement funds will probably need to be changed. I have come across cases where ex-spouses are still the nominated beneficiaries on policies, which can cause complications.

I would recommend that you get your financial adviser to run a database search and draw up a list of all your policies so you can change your beneficiaries.

Update your will

You will probably need to amend your will. You must ensure that you have the right structures in place to manage the financial arrangements of any minor children. You must ensure that any money you leave them actually goes to and supports them.

I have seen a lot of unhappiness caused by a sloppily written will resulting in the children’s inheritance being used to support the second family’s lifestyle.

Invest payouts wisely

When assets are divided, there will often be a cash payment made to one of the parties as part of the settlement. Avoid the temptation to leave this in your bank account, as you could end up using this money to support a lifestyle that is beyond your means.

Remember, when you get divorced there is a very good chance that your disposable income will be less than it was when you were married. Rather invest this money where it will grow, but be accessible in an emergency. DM

Kenny Meiring is an independent financial adviser. Contact him on 082 856 0348 or at financialwellnesscoach.co.za. Send your questions to [email protected]

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R29.

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