The truth about divorce

-By Sunél Veldtman & Michelle le Roux

 

If your future depends on it, you should know about it.

The lockdown has probably challenged most marriages. Some have been broken. Divorce attorneys are already dealing with the fall out as they report up to a 20% rise in divorce applications. The current economic climate will make these divorce negotiations more difficult and perhaps more bitter.

At Foundation Family Wealth an area of expertise is helping people navigate the financial aspects of divorce. Although we have helped couples through divorce successfully, we are most often consulted by women when they are faced with divorce, specifically, high-stake divorces. There’s a pattern to the pictures: The family has led a beautiful lifestyle, often involving private schooling for the children and luxury holidays, frequently to overseas destinations. Because of the husband’s challenging career, the wife has relinquished hers, either fully or whatever is left looks more like a hobby.  This situation is more typical of those marriages where both parties are currently past midlife and the traditional husband and wife roles dominate.

Through the years, I have noticed trends – perhaps unsurprising yet, distressing trends. Trends that are quite specific to women.  They are not the only trends, but they are what I write about today.   If you are a woman, depending on your husband’s financial future for your own, you should take note.

 

Truth #1 You are unlikely to afford the same lifestyle after divorce

It is with shock that many women learn that they may not be able to continue in their accustomed lifestyle after a divorce. Even if they want the divorce, which is more often the case after midlife, they typically have to sacrifice the life they have known: the life which they helped to build when they supported their husband’s career and took care of the countless unpaid jobs required to manage that lifestyle.

Very few divorces end in the continuation of the same lifestyle for both parties. It is logical that it is more expensive to run two households than one, especially if those household expenses included overseas holidays and holiday homes. It is highly unlikely that there will be enough money to fund those for both parties. It is likely that the wife without the high paying job, will no longer be able to afford a home that resembles a family home and won’t be able to afford the holidays they had before. The husband can often continue a similar lifestyle after divorce because he is likely to continue earning well.

 

Truth #2 If you don’t know what you’re entitled to, you may not get anything

One would assume that people would know what their marital contract involved but that’s not my experience. So, a tip: if you’re thinking about divorce, read your marital contract to understand what you’re entitled to before you even consider it.

In South Africa, there are three types of legal marital regimes. These are otherwise known as marital property systems and include marriage in community of property; marriage out of community of property with accrual; and marriage out of community of property without accrual.

Many people getting divorced now were married out of community of property with accrual.  This type of marriage contract stipulates that property acquired during the marriage (referred to as accrual) should be divided equally between spouses.

Recently we helped one of our families through a divorce, where the wife had never worked due to her husband’s frequent job relocations. All the assets were registered in his name and we uncovered that they were married out of community of property.  This means that she was not entitled to anything, other than maintenance. Ensure that you do not become this wife. Fortunately for her, she married a reasonable man (although incompatible) and with our help, they could come to a fair agreement.

 

Truth#3 If you don’t know what you own, you may not get half either

This kind of scenario often has two aspects to it.  The first is that the wife is not interested in the financial management of their family – other than perhaps managing the household budget – and so she never understands the picture. Sadly, when it then comes to the application of the marital contract, specifically the division of property and assets, she has no idea what she is entitled to. Therefore, it becomes a guessing game.

The second is the act of willful concealment on the part of the husband.  In my experience, many of the men in these high stakes divorces never intended to share their wealth equally with their wives. Some have never considered their spouses equal partners in their marriages, whilst others start arranging their affairs in an opaque manner when they start considering divorce.

 

Truth #4 Women often sign their own financial future away

The trust structure is a common tool used to syphon funds away from accrual or marital property. The initial intent with a family trust may be honourable and even part of a family financial plan but it can turn on the financially illiterate or uninvolved spouse. Frequently, the wife is even a trustee of the trust and will have signed documents about which she was not properly informed or did not enquire enough about.

Once funds are in a trust structure, it can become easier for a wife to be side-lined or even completely alienated from those assets. Once in a trust structure, the assets are no longer part of the marital property. Although it is not impossible to claim a share of those assets, it is a complicated area of law and it can become extremely costly to claim your part of those assets.

 

Truth #5 The one who controls the money, controls the outcome

Our law requires that there should be full disclosure of assets from both parties. However, in practise, some men know that they hold the power because they control the money. They can then control the outcome by cutting off money to the wife while the divorce proceedings drag on. Frequently, they will have made up a number which they believe their wives are entitled to, they could survive on or that they are prepared to sacrifice towards their freedom. They can make it impossible or unpleasant for a woman to survive or move forward until she agrees to his terms.

Even in society, there is still this idea that the money is his, which he can choose to share. However, the accrual contract states that whatever is accrued in the marriage should be shared equally. It is not up to the main breadwinner to decide how generous he feels.

This type of financial abuse may have occurred throughout the marriage or only start once negotiations turn to money. The children are often used as negotiation pawns too, as are sentimental assets like the family or holiday home. Interim maintenance can also be used as a bullying tactic:  here the husband stops or threatens to stop paying maintenance for his wife or children during the divorce proceedings.

 

Truth #6 It will cost to claim your share

If a woman does not know what her husband’s assets are worth, it will be extremely costly to find out: either through legal costs, mental wellbeing or future financial ruin. Many women are unwilling or unable to go through lengthy legal battles to uncover all their husbands’ assets. Divorce can strip both parties from their mental stability. I have seen strong, successful women reduced to tearful insecurity by the grinding divorce process.

Sometimes, the assets are not willfully hidden, but just so complicated that it will take a long time to unravel, which can be costly and unpleasant too. Forensic and accounting experts may be required to uncover the assets. These lengthy and complicated battles may require mental tenacity that isn’t accessible during most divorces. Mental energy that could rather be spent focusing on your new life or the wellbeing of your children, is instead spent on fighting to get what is legally yours.

 

Truth #7 You may not qualify for maintenance either

So far, I’ve described the challenges for women in getting a fair share of the accrual. But, even when the assets are fairly shared, there is rarely enough to provide a woman with a similar lifestyle for the rest of her life. A woman may claim maintenance from her husband to survive. However, if you have some form of education but have never worked during your marriage, the courts may only award you a few years of maintenance  – called rehabilitative maintenance, this affords you enough time to ‘get back up on your feet,’ usually no more than two years.  It’s nearly impossible, though, for a middle-aged woman to establish a new career in a few months. Even more so, when she is also navigating post-divorce adjustments and steering children through the trauma.

 

 

What can you do about it?

Although in theory, the South African legal system seems fair to women who have made raising children and building a life and a home their main priority, the reality can be grossly unfair. The hard-hitting truth is that if as a woman you are relying on your husband’s job and wealth creation ability for your financial future, then you need to take steps to protect your and your children’s financial future. It is not difficult. Just stay involved and informed. We recommend the following:

  1. Get involved in running the banking or the household budget. Not only will you become better informed about how the family’s budget operates, you will also know where the money is flowing.
  2. Sit in on the meetings with the financial advisor or the banker or make sure you get reports of those meetings.
  3. Keep a record of assets that accrue during your marriage. A good practise is to put together a list of assets and liabilities every year.
  4. Approach it from a risk perspective. What will happen if your husband dies?
  5. If you are considering a divorce, consult a financial planner and an attorney before you do anything else. It is important to understand what you will need to know and how much financial security you will need to make this transition. Many people regret getting divorced when they finally realise the financial implications.
  6. At the same time, do not underestimate yourself or the resilience and strength you possess to build a new life if you must walk away from a damaging marriage. No amount of money is ever worth your health or wellbeing.

 

At Foundation Family Wealth, divorce and transition planning is one of our areas of expertise and strength. Consult us if you need help through a divorce. We have developed unique planning methodologies and services exactly for these difficult transitions.

 

 

<Foundation Family Wealth is an Authorised Financial Services Provider>

Sunél’s Blog | A chat with a friend, a stolen cell phone, financial independence and a pandemic

Three stories were woven into one experience for me during the past week.

A friend shared his dreams with me, daring dreams that may cost him a big chunk of his capital, perhaps most of it. He ended by saying that he’ll be happy to live a simple life if it all fails. He will be left with little, but will have lived, will have dared and won’t regret it.

Perhaps you know that I have loved Cal Newport’s book Deep Work, which had a meaningful impact on how I work and live, how I think of creativity and the necessity of protecting my ability to focus in a distracted world. His new book, Digital Minimalism, Choosing a Focused Life in a Noisy World, expands on these concepts with more practical advice on selective digital use. I’ve been (mostly) sticking to his suggestion of a thirty-day digital detox while I finish reading his book. His basic premise is that, unless you curate your own digital experience, it will be done for you.  By design, digital devices and social media will overtake your life with unhealthy, unintended consequences – it is likely to rob you of deep connections and eventually mental wellbeing and happiness.

At first, I still reached for my phone as the addiction played out but then after a while, I realised that there was nothing there. One cannot really get addicted to the weather app and I’ve never been one for games. I now find myself with more time for reading and knitting and generally being more present in my daily life.

It’s exactly what Newport speaks about – a return to time spent in meaningful conversations and analogue hobbies. He delves into the financial independence movement, which aims at achieving early financial independence through extremely frugal living. The idea is that if you need little to live on, you can then save enough capital to sustain that lifestyle early on in life. After achieving early financial independence many people in the movement opt for simpler lives, involving a more sustainable and hands-on lifestyle. It clearly does not involve much internet surfing other than using YouTube to learn a skill like welding.

It is so contrary to how we set out. It was understood that as your job expanded, you would expand your expenses with everything that goes with the picket fence suburban lifestyle. It meant that you needed an ever-increasing pool of capital to reach financial independence. It also meant that many never reached that goal, not even at the normal retirement age. It brings me to my third story.

Over the past weekend, I was somewhat violently relieved of my iphone11 in a busy shop. Thankfully, there were no guns involved and I have good insurance. Given my digital detox experiment, it is somewhat ironic. I was immediately challenged by my automatic assumption that I’d replace my stolen phone. Given that I hope to develop a different relationship with my digital devices, that I am pursuing a more curated experience, I wonder if I will need the latest version?

The pandemic has opened countless windows of possibilities. It has shown us that we don’t need to spend so much money. It has invited many to question their lifestyles, their assumed goals or career paths.  It highlighted that the ways and means already exist to carve out a life which can entail living in one place but working for people or employers on the other side of the world.  Replacing my fancy phone is just one example of an automated response, which I am now questioning, in the light of my friend’s story, Cal Newport’s book and the pandemic.

These stories are all small invitations to the possibility of a new story for us, our money and our world.

Ps. I love to hear your comments. If you are not on our mailing list, you can subscribe to receive this blog every week on our website www.foundationsa.com.

Kind regards,

Sunél

// 18 September 2020

Sunél’s Blog | What is the value of advice?

When I was a young parent, my dad gave me a piece of parenting advice that probably changed the course of my life and saved me and my children from the trauma of helicopter parenting. It freed me to enjoy my children as unique humans.

If I had to pay for that advice, I wonder what it would be worth?  My dad’s advice did not have an immediate impact on my life – the value emerged over years and illustrated for me that the value of advice is difficult to measure.  It is not easily quantifiable or tangible.

When I talk about advice, I mean more than someone telling you something of worth.  I also include the ability of the advisor to ask a good question or to listen well so that you come to your own insight. This kind of insight can be invaluable –  be it recognising a subconscious behaviour pattern that is damaging or highlighting a risk in a decision you had previously not seen.

The same is true of financial advice. How much should you pay for it and how much is it worth? How do you compare the price of advice, when not all advice is made equal? And how do you gauge what the advice will be worth in the future?

The narrative in the media around fees is not helpful– local media has emphasised the importance of lower fees. While it’s good to be cost-conscious, losing sight of the value of, and the expertise behind, good advice can hurt investors rather than help them. The cheapest advice may not be good value for money. Worse still, may be going it alone with your money.

Studies all over the world show that those with advisors are better off than those without advisors. One such study of real investors by the Investment Funds Institute of Canada showed that just by changing an investors asset mix, advisers added 83 basis points per year net of their fees above non-advised clients. In other words, those who pay for advice, get more than their money’s worth for that advice. But further than that, a Vanguard study showed that advisors can add, on average, 150 basis points just by helping investors stick to their long-term strategies.

Other studies have shown that clients benefit significantly from personalised withdrawal or retirement strategies. For example, just by advising someone to retire a few years later or contribute a few thousand Rand more per year, an advisor can significantly increase the chance of a successful retirement.

In 2020, advisors probably earned their fees just by keeping their clients invested in their long-term plans. The difference between selling out of long-term plans in March or holding on was in excess of 30% in most portfolios. Capitulating or giving in to the urge to ‘do something’ robs investors of the long-term rewards of their investment strategies – some studies even show that more than half the market return is given up by fiddling with investment strategies.

The premise of those who advise investors to hunt for the lowest fees is that investors will by default get the returns available in the market. However, numerous studies show that achieving market returns is neither a given nor a circumstance of default.    Actual long term returns hinge on behaviour that is directly opposed to automatic human responses.

Helping clients through these trying times and traumatic personal events is probably the single most important skill an advisor can bring to bear. It is probably also the most underrated and undervalued skill. It requires grit on the part of the advisor and a skillful handling of difficult conversations.

A skilled advisor is no longer just a professional person in a suit, with the requisite qualifications, experience and strategies, on the other side of the table. It is now a person who, with empathy, can coach, consult, advise and know when to do what. They deliver far more than just helping you choose a good product – they deliver an experience that will help you choose well for yourself.  It is in part also a journey of mentoring clients towards self-knowledge.  The cost of running such a compliant and client-friendly advisory business is substantial, not only due to the increased regulatory scrutiny and client demands but also due to the ongoing training and development of expertise required for that kind of relationship.

Yes, there are still dubious salespeople in our industry, but I see a growing profession of increasingly skilled advisors in South Africa. It pains me then when the media and the passive industry only highlight the lowest examples and people who need advice shy away from it; or when pressure is placed on advisors to lower their fees when they are delivering value far in excess of their cost to the client.

Seek value for money when it comes to advice, not the rock bottom price. You don’t do that when you buy a car or a house. Why do it when you engage with one of the most important relationships in your life?

Ps. I love to hear your comments. If you are not on our mailing list, you can subscribe to receive this blog every week on our website.

Kind regards,

Sunél

// 11 September 2020

Sunél’s Blog | A lesson from historical romance novels

I read historical romantic novels in old fashioned paper format before bedtime. Life is difficult enough, so what I read before falling asleep must help me escape and switch off from screens and the day’s challenges. However, historical novels are often more than an escape.  They can be useful. They can expose ways of living and thinking, of how the world worked in previous eras.

Reading about living through the Great Depression, the world wars or the Spanish Flu can give perspective. Nowadays, for example, it is expected that young people will leave the home and become self-sufficient and live on their own. We believe that they should preferably get a foot in the door in the property market as soon as possible and then build their own life as a nuclear family. It is seen as financial failure on the part of the parents and the young adult if they are still living at home after a few years. Yet, my bedtime reading tells a different story.  In my romantic historical novels, I am reminded how newlyweds lived with even wealthy parents – it was the exception to afford the suburban family home. Even now, other cultures do not stigmatise living together as Western cultures do.

However, this trend is perhaps changing, partly due to the pandemic. A recent article in the Financial Times, stated that the number of 20 to 34-year-olds living at home rose by 46 per cent over the past 20 years. Apparently, millennials no longer consider it a failure to not leave the roost; but rather a sign of financial restraint in order to achieve long-term goals. The pandemic has seen many families moving back in together and indications are that they may not move out again. Financially, it makes so much more sense.

Property prices and rent have become unaffordable for young people in many of the world’s cities. Many parents consider it their responsibility to help young people enter the property market, sometimes to their own detriment. Living independently should not be considered a symbol of financial success if the cost puts your future financial independence at risk. Likewise, helping children to enter the property market must never put your own retirement at risk. Paying too much of your income toward a property must also not put your own retirement at risk.

Re-imagining life after the pandemic for young adults and retirees could involve rethinking living arrangements. The pandemic has put a spotlight on the vulnerability and loneliness of old people  – whether living alone in retirement villages or simply by being separated from family. Sharing living costs between a few single older people or families make so much sense. It also makes sense from a safety and companionship point of view. Perhaps the idea of communal living for retirees or communal living for different generations should no longer be merely historical.

What stands in the way is our attachment to independence and individualism. However, this attachment is the very reason our generation suffers from loneliness. And it may also stand in the way of future financial security.

Ps. I love to hear your comments.  If you are not on our mailing list, you can subscribe to receive this blog every week on our website.

Kind regards,

Sunél

// 04 September 2020