So now that the divorce has been finalised and all the arguing and gamesmanship has come to an end (hopefully), it's time to move on with your new life, but where to start? This is not a simple question to answer as many aspects of your life have been disrupted by this life changing event, and each area needs to be reassessed individually. When it comes to your financial planning needs, there are three areas that I feel should be addressed.
Firstly, I recommend starting with a simple cash flow analysis. This will give you an indication of your monthly expenses and whether you can cover them as they currently exist. If there is a shortfall, it is better to know about it in the beginning of the month so that you can alter your spending habits rather than having to tap into your savings, or worse, incur more debt. This is a valuable exercise to go through as there may be expenses you are now liable for that you weren't previously, for example in some relationships one person is responsible for paying the bond and the partner is responsible for groceries and water and lights. Careful budgeting is required now that you are no longer sharing certain expenses, a simple budget template will be more than enough to guide you. You can download one from the internet, get one from a stationer such as CNA, or click on this link to use the one developed by us at Infinity Wealth.
The second aspect of your financial plan that needs addressing is your Last Will and Testament, as well as beneficiary nominations on life policies, endowment investments and retirement funds. In terms of the Wills Act 7 of 1953 "if any person dies within three months after his/her marriage was dissolved by a divorce or annulment by a competent court and that person executed a will before the date of such dissolution, that will shall be implemented in the same manner as it would have been implemented if his previous spouse had died before the date of the dissolution concerned, unless it appears from the will that the testator intended to benefit his previous spouse notwithstanding the dissolution of his marriage". This means that even if you don't change your will (i.e. your ex-spouse is still a beneficiary in your will), and you pass away within three months of the divorce, the Master will automatically exclude your ex-spouse from your estate. If you have still not changed your will after the three month period, and you pass away, the Master assumes that it was still your intention for your ex-spouse to benefit from your estate, and the wishes in your will be executed.
Beneficiary nominations on life policies and endowment investments supersede your will, so if you do not wish your ex-spouse to benefit from the proceeds on your death, it is important to change these immediately with the relevant life houses or investment companies. Often minor children i.e. under the age of 18, are then nominated as beneficiaries on these policies. This creates another potential problem because according to South African Law minors cannot inherit directly (life companies will not pay the proceeds into a bank account in their name, and with good reason obviously). The problem lies in the fact that the life company has to pay the money somewhere, and if your beneficiary nominations and Will are not worded correctly there is a chance that the proceeds will go to the Guardian's Fund. This is a fund created to hold and administer funds which are paid to the Master on behalf of various persons known or unknown, for example, minors, persons incapable of managing their own affairs and unborn heirs, amongst others. The issue is the mismanagement of funds that tends to take place there. Don't take my word for it, click on these links and read for yourself:
http://www.timeslive.co.za/local/article699241.ece/R80m-stolen-from-Guardians-Fund--Radebe and http://fidsa.org.za/press-release-fisa-comments-on-the-guardians-fund/. Personally, this is certainly not a place where I would like my children's money to go! There is more than one way to guarantee that your beneficiaries don't have to deal with this. Firstly, you need to ensure that your beneficiary nominations and the wishes in your will "speak" to each other, and that a testamentary trust is set up for minor beneficiaries upon your death. Another method is to set up an inter-vivos (living) trust while you are still alive, the caution here is that there is a cost factor and several other consequences that are beyond the scope of this article.
The third area to be addressed is an often overlooked one, and that is the role that life assurance can play. It is quite common for a divorce order to make one of the ex-spouses (the breadwinner) responsible for paying the school fees or responsible for other expenses within their maintenance proposal. In this instance, it is prudent for the ex-spouse who is dependent on these payments to insure that if the breadwinner should pass away that their financial obligations (in terms of the divorce order) are still met. The structuring of the policy is very important. The breadwinner should be the life assured and payer of the policy, and the dependent spouse should be the owner. This is important because the owner of the policy is in control of the beneficiary nomination. If the breadwinner were to be the owner of the policy, he/she could change the beneficiary at any time, thus eliminating the financial protection offered by the policy.
Each of these aspects may appear to be quite simple and logical, but if not addressed timeously they could be detrimental to your financial planning moving forward. My suggestion is to consult with a highly qualified financial planning professional who can assist you with each facet of your portfolio.