Divorce – What you need to look out for

Divorce

Divorce is a time of major change at all levels.  They need to bring in a skilled and ethical financial planner to help them re-calibrate their finances and reduce their financial risk.  Areas to look at include:

Maintenance cover

What will happen to maintenance payments should the payer:

• Die?
• Become permanently disabled?
• Become ill and cannot work for an extended period?

One can take out insurance on the payer’s life and have the proceeds payable to the child (or a trust) each month till the child reaches an agreed age.  This protects the single parent from the risk of the maintenance disappearing should anything happen to the ex-spouse

This can be written into the divorce agreement.

Investment of lump sum proceeds

If the divorce agreement results in a payment of a lump sum.

A skilled certified financial planner can ensure that this be invested wisely to meet the specific needs of the family.

Bond cover

Often a new property is purchased.  This will result in the need to have bond cover.  A skilled financial adviser can get the right shaped cover at the best price.

Pension payout

Spouses are entitled to a payout from their spouse’s pension fund.

This needs to be invested correctly in investment portfolios that are appropriate for the lifestage of the divorcee. Getting the portfolio wrong by 1% can have up to a 20% impact on the final return.

Re-calibrate finances

Divorces are costly.  Savings will have been used up.  Moving onto one salary will have an impact on the longer term plans.

This requires that a new financial plan be drawn up.

A certified financial planner can help ensure that:

• There is sufficient risk cover to look after the children.
• The correct medical aid gap covers are in place.
• The correct beneficiaries are noted.
• The longer term retirement needs are understood and longer term plans are in place to address them.

There are often short term cashflow issues at the time of a divorce and people often do not want to think about the longer term.  A decent planner can help quantify the need and assist in prioritizing those issues that are critical and figure out a plan of action to address the longer term issues in the future.

If you are going through or have recently divorced, contact me.

I can help put the right structures in place.

 Kenny Meiring CFP®