Considering that almost three marriages end in divorce in South Africa, and research indicates that women are the hardest hit financially after divorce, finding your financial feet after this devastating event can be one of your lifelines.
According to Financial Planner at Citadel, Nicky Gous, divorce is always traumatic, and finances are just one of the areas where those involved need to salvage, protect and make positive steps for the future.
“Many of our clients find themselves in the position of no longer owning a home, their savings are halved and they now have to pay child support, which can be crippling financially as well as emotionally,” she said.
International studies have found that women can lose up to 77% of their net worth after divorce.
“Time will also be a currency that you will have to manage – time with your children, time to focus on your career, more time in the markets to recover the capital loss you have experienced and time to reflect and plan for your future.”
Gous added that you might initially need to make some sacrifices, but in time and with proper planning, you can re-establish yourself financially.
Gous’s advice is size up your situation, then formulate a strategy and stick to it.
Size up your situation
Financial stability can be an anchor straight away if you get things under control quickly, but financial instability can have a significant negative effect on your emotional state. With proper planning and a strategy, however, you can have an immediate sense of accomplishment that will have a positive impact on everything else.
Objective advice from a financial adviser is critical. Most advisers have a comprehensive financial planning tool designed to set out a financial plan and see how long your capital will last. This will give you a good idea of how much you really need in order to retire and live well, and what you need to save to make it happen.
If at all possible, work with a financial planner to determine your post-divorce costs before starting your divorce settlement negotiations. When you’re emotional and just looking to move on, you often don’t apply logic and sufficient thought and reasoning to the budgeting process, and this can prove detrimental to you down the line when you realise you didn’t think through all the pending costs properly. Work with the financial planner on a variety of scenarios – this will give you good insight into what different settlement terms will mean in the long term.
Size up what you have by setting up a basic balance sheet. What do you own now, what is your income, what are your expenses, and what are your liabilities? Do you need to buy another home or can you rent for a while? Will your income be enough to cover child support as well as your other expenses? How will you build up your savings again? Where can you reduce spending to accommodate your new responsibilities?
A detailed budget will give you a good idea of what your income is and what you spend it on, but also how or where to save. Being in control of your new situation and finances gives you peace of mind. One less thing to worry about makes a big difference.
Creating financial stability after a divorce can be challenging. You are starting again, endeavouring to build up your savings in an attempt to grow and protect your retirement capital. If retirement is not far off, protection of capital is paramount, but growth can make the difference to your lifestyle later on.
If you’re younger, then growth and recovery is more important to make up for the reduced capital value you now have. But it can be quite hard to judge whether you have enough to get by and still enjoy your life now.
Formulate a strategy
The immediate need for child support and running your new life are going to be a challenge, but can be planned and managed effectively if you stick to your strategy.
Don’t forget to update your will once you’re divorced, as well as review the beneficiary nominations on any policies and investments. Ensure that you and your soon-to-be ex-spouse are in agreement as to who should be the guardians of your children should you both pass away while they are still minors. It is also prudent to consider the development of a testamentary trust for the children should either spouse pass away before the children are in a position to inherit or manage their own wealth.
Re-look at your death and disability cover as your needs and requirements will have changed. If minors are involved, this is particularly important, as the remaining spouse needs to be sure that the maintenance obligation will be fulfilled under all conditions.
Regular reviews with your financial adviser are essential to make sure you are on track. Having put together all the facts, you now have the information you need to make a plan and get your affairs in order.
Getting down to it is the next big step. Take it on and make it happen.
- Start with your budget – set it up and stick to your strategy.
- Remember to save – set up a debit order into a savings vehicle. A unit trust is a good option.
- Create order – get your home and work life operating smoothly. Seek professional help if needed.
Citadel is a specialist wealth manager with over 20 years’ experience in providing bespoke solutions for high-net-worth individuals.