8 Mistakes to avoid in divorce
Much like other traumatic events, a divorce is often unexpected, unpleasant and, most disturbingly, something for which few people make preparations. Although divorce is hardly a pleasant topic (for most people, at least), there are a few mistakes which, if successfully avoided, may greatly accelerate the process and prevent unnecessary hardship throughout the proceedings.
In this article, I would like to explore some of the common financial mistakes made by potential divorcees, and particularly, how to avoid falling into these traps.
1. Keeping yourself in the dark, financially speaking, or allowing your spouse to keep you in the dark
Divorce proceedings, for most people, constitute highly uncharted terrain, which may lead to feelings of uncertainty and instability. This is, in many cases, aggravated by spouses feeling uncertain about the financial affairs in the marriage.
Not knowing the state of affairs related to your finances, the finances of the joint estate (if applicable), or your spouse, is highly problematic in divorce proceedings. Particularly, the following problems may arise:
- Not being able to make a properly considered value judgement related to the potential settlement of the matter, which invariably leads to one-sided settlements.
- Not knowing whether litigation will be a worthwhile, particularly in cases where there is a high discrepancy between the assets of the respective spouses.
- Not being able to prevent an unscrupulous spouse from defrauding the joint estate, or diminishing their assets during the course of the divorce proceedings to frustrate claims which their spouse may have.
Although there are mechanisms to establish values of assets and/or liabilities during the course of the divorce proceedings, these are generally quite costly and are fairly easy to sidestep.
It is therefore of the utmost importance that you make yourself aware of the full financial position of your estate, your spouse’s estate and/or the joint estate, if applicable.
I can assure the reader that, as far as this question is concerned, an ounce of prevention is certainly worth more than a pound of cure.
2. Being overly concerned with retribution rather than resolution
It is no secret that divorce proceedings are often testy and that it is a very emotionally driven process. Unfortunately, many people fall into the trap of adding fuel to an already raging inferno by becoming overly focused on punishing their spouse, rather than seeking the resolution of the divorce.
Falling into this trap may lead to unnecessarily prolonged litigation which becomes highly traumatic, as well as costly for both parties.
The reality is, insofar as one deals with the financial implications of divorce, that a “fault principle” may not be as relevant as divorcing parties may suspect. In other words, divorce as a process to dissolve a marriage which cannot be saved, and not a forum to cause suffering or punishment to either of the parties.
In essence, the financial implication of most divorces is a pure Rand and Cent exercise. Although Section 9 (1) of the Divorce Act does make provision for a spouse to potentially forfeit financial claims based on material misconduct during the marriage, these kinds of claims are not generally viewed favourably by the Courts, and it is uncertain whether this provision in the Divorce Act would survive a Constitutional challenge.
By virtue of the above, parties to a divorce may save themselves a lot of money and trauma by considering a divorce as a mechanism to dissolve the marriage, rather than an instrument to punish their spouse. By taking the emotion out of your divorce, and treating it as a business transaction, you may even find yourself in a more favourable position than had you battled it out with your ex by means of the courts for many years.
3. Not considering settlement and/or mediation
The adage goes that “a good settlement beats a bad trial any day”. Although there are some cases where serious disputes may arise which would hinder the parties from reaching a settlement, these are certainly rather the exception than the rule.
Even in cases where parties may feel that they have an exceptionally strong case, it may be to their advantage to settle the matter rather than exerting energy and costs to proceed to trial.
Refusal to consider a reasonable settlement is even, in some cases, frowned upon and punished by the Court.
In some cases, for whatever reason, spouses are not able to come to an agreement on their own. In these cases, it is often useful, to engage the services of a divorce mediator who will act as an impartial third party and assist the spouses to reach a settlement which is mutually agreeable. It is very rare that a divorce ends up in a win-win situation, but mediation is a powerful mechanism to ensure that a divorce does not end up as a lose-lose situation.
4. Failing to take into account the tax implications of a divorce
It has been said that, in life, nothing is certain but death and taxes. The same rings true for divorce. Particularly, when it comes to Pension Benefits, the South African Revenue Services will ensure that they get their pound of flesh. In fact, it is usual in pension fund redistributions, that the Receiver of Revenue will first deduct tax from the redistributed amount prior to any funds paid out, or reinvested on behalf of a recipient spouse.
The importance of involving your financial planner and/or tax consultant during the course of divorce proceedings, therefore, cannot be overstated!
5. Failing to compile an accurate budget of monthly living expenses
Unfortunately, it is a rule of thumb that both spouses after divorce will be financially a little bit worse off than prior to the divorce. The reason for this is that shared household expenses such as electricity, rates, and common household items such as cleaning materials, will no longer be joint expenses but separate expenses.
Particularly when dealing with questions of maintenance for the parties or for minor children born of the marriage, it becomes very important for divorcing spouses to properly compile their budgets to ensure that both parties and their children, if applicable, are able to cope financially after the divorce.
Failure to plan, in this regard, may lead to unending strife after the divorce. This is a serious impediment to parties moving on with their lives and should be avoided at all costs.
6. Not considering the full implications of the divorce settlement before signing
Sadly, buyer’s remorse does not grant an automatic right to a signatory to a settlement agreement to withdraw from the settlement agreement.
Even if you are unhappy with a settlement agreement, this does not give you an automatic right to withdraw from it. It is therefore very important to ask yourself the following questions prior to signing a divorce settlement:
- Do I understand the implications of the document I am signing?
- Have I considered how the proposed settlement will impact on my life going forward?
- Have I duly counted the cost of the settlement agreement, or am I simply signing because I want to get the divorce over with?
- Am I entering into the settlement agreement with open eyes? I.e., do I have a full understanding of the financial position and whether the settlement agreement is fair or not?
When it comes to children and maintenance in divorce, the position is somewhat fluid and variations may be sought on the basis that the position has changed. This is not the case when it comes to the division of assets and liabilities. Once you have committed to a settlement, you are bound by it.
7. Disregarding the impact of inflation
It is no secret that, in the South African context, as well as the global context, we are living in uncertain times. For this reason, Maintenance Courts are inundated with matters where divorced spouses apply for variations in maintenance, owing to a divorce settlement which does not provide for inflation.
When planning a divorce settlement, it is therefore of critical importance to not only plan for them now but also for the future.
8. Not amending estate documents, such as wills or trusts
Divorce has far-reaching, lifelong consequences. Many prospective divorcees are consequently very focused on the here and now, and not of the implications of their divorce. After a divorce, documents such as wills and trust deeds may reflect information which no longer bears any relevance to the situation post-divorce.
It is of utmost importance to, once the dust of the divorce has settled, consult with an attorney to ensure that these documents are updated.