Building a new tomorrow
By Michelle Human, Legal Marketing Consultant at Liberty Life
According to internet research, compared to singles, married people accumulate about four times more savings and assets. Divorced people have 77% less assets than singles. Scary statistics which tell us that divorce can clearly take its toll on your finances. Every stage of your life has different needs and your financial plan should reflect these unique requirements. We have put together a step by step plan to get your financial plan back on track after a divorce.
A new Will for a new chapter of life
Reviewing your Will is a must for anyone after a major life event and divorce is certainly no exception. If you previously had a joint Will with your ex-spouse, don’t feel that this is a threat to your new Will. Most Wills start with the fact that the current document is your last will and testament and revokes all your previous Wills. Make sure that you date your new Will to ensure it is clear that this intended to be your most recent version.
Give a copy of your Will to someone you trust and who will be readily available should something happen to you. Your banker, attorney or financial advisor are all good options.
Disinheriting your ex
Changing your Will alone is not sufficient. It is vital to change your beneficiary nominations on all of your life assurance policies as well. Our law assumes that you have intended to disinherit your ex-spouse for a window period of up to three months after divorce. However make sure that within this three month period, you have reviewed and changed your beneficiary nominations on any life assurance policies. After the three months, should anything happen to you, your beneficiary nomination will stand. Not changing this, could result in your ex-spouse inheriting from you, years after your divorce.
Who gets custody of the retirement plan?
The clean break principle in respect of divorce was introduced into our law in 2007. This means that on divorce, depending on your marital regime, you may have a claim against your ex-spouse’s retirement fund or vice versa. If this is granted in the divorce order you may either transfer the benefit into your own retirement fund to preserve the benefit or take your portion in cash.
If you transfer the benefit to another retirement fund, the transfer will be tax free, provided that your tax affairs are in order. If you withdraw the funds, there is a potential tax liability.
Although divorce comes with a hefty price tag, it is vital to consider preserving these funds for retirement, rather than using them to fund a short term goal. In addition you will now need to consider how you will make provision for your retirement without the support of your ex-spouse. Perhaps a monthly debit order contribution to a retirement annuity will assist you in realising this goal.
On the other hand, if you are the spouse who has had to pay out your ex-spouse, you are now left with a reduced retirement plan which could seriously compromise your standard of living at retirement. Consider an ad hoc payment each year to recoup these funds.
Either way your financial advisor will be able to guide you through the process and provide you with the most tax efficient solution for your needs.
Making sure that maintenance obligations are secure
One of the goals of a financial plan is to give you peace of mind. If your divorce has resulted in a maintenance obligation, make sure that you can be certain that it will be paid in any eventuality. A life assurance policy can give you this certainty. Ideally the person, to whom the maintenance payments are due, should be the owner of the policy on the life of the maintenance payer. On claiming either disability or critical illness benefits, the life assurance company will pay the benefits directly to the owner. In the event of a death claim the funds will be paid to the nominated beneficiary, which can be appointed only by the owner.
Who will take care of you?
Make sure that your financial well-being is taken care of, especially if you have others relying on you. Being diagnosed with a critical illness is devastating enough, without even considering the financial implications. Critical illness, impairment and disability benefits are all designed to protect your lifestyle and/or replace your income in the event of this happening. A detailed financial needs analysis will take into account your divorce and give you the best recommendation for your needs.
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