Einstein is often credited for stating that compound interest should be the eighth wonder of the world. Even though I would like to agree with the statement, I’m not sure if he actually came up with the statement. Another famous statement by Einstein is that for every force in nature, there is an equal and opposite force.
Can it be that divorce is an equally strong, but opposite power of wealth creation?
Wealth is not simply a materialistic concept. Wealth more accurately refers to abundance, for example, someone with a wealth of knowledge is able to share their knowledge with others without necessarily impoverishing themselves.
With the breakup of a marriage, a household is divided and more often than not, this division is driven much deeper than merely finances. Family relations suffer deeply in the process. In fact, the divorce process is initiated by a break in trust, where at least one person in the relationship feels that their needs (financially or emotionally) was neglected by the other.
Sometimes damaged relationships can be restored, but not without some sacrifice either emotionally or even financially. In essence the nature of a relationship lies in give-and-take.
However, when these relationships are NOT restored and divorce proceedings are initiated, the destructive power of a divorce is revealed. Instead of communicating directly with each other, attorneys are used as communication conduits between ‘negotiating’ parties. If agreement is not reached soon, more damage is inflicted on both the relationship and financial resources. And the longer the process, the deeper the damage.
Is there an alternative approach that can ease the process and protect wealth?
Over simplified, the true nature of financial planning is to create and protect wealth. Applying the normal financial planning process, a qualified financial planner should be able to limit the damage caused by a lengthy divorce process.
The financial planner should establish the new relationship with the client, even if they have been planning together for years, the onset of divorce proceeding means that where previously couples may have done their planning together, now planning will be done for the individuals.
The next step one of the fact finding and goal setting. Some of the most important aspects to consider here are income needs of dependants (budgeting), marital regime (for asset division) and detailed account of all assets and liabilities.
Now the planner can assess an independent analysis taking into account all the relevant factors and devise a financial plan for divorce. This should include suggested solutions for maintenance (income) and a fair, uncomplicated asset division plan. There have been numerous court cases, at additional expenses, where something as simple as a pension fund distribution mentioned specifically mentioned in a divorce order, could not be implemented as a result of a wrongly worded order.
Some of the potential pitfalls relating specifically to financial products include, but are not limited to:
- Division of pensions. Firstly, the agreement should specifically refer to a member’s pension interest and a percentage to be transferred to the non-member spouse. The definition of pension interest varies between occupational pension funds including provident funds and retirement annuities, although all of these are categorised as pension funds. The financial planner could asset in calculating the difference in order to create certainty as to the expected amounts and advice on the most appropriate actions in order to prevent excessive tax burden.
- Life assurance policies. Often a life policy was taken out during marriage to secure financial provision for dependants. When a maintenance order is given, such a life policy can be a safeguard for the person who relies on that maintenance and it could be agreed that the policy be ceded to that person.
- The wills. Important to note is that in the 6 month period after a divorce, the ex-spouse is effectively ignored from the will unless a new will dated after divorce specifically include that ex-spouse.
Once a couple is in agreement to the plan it should be implemented.
The implementation of such a plan will start with providing it to a divorce attorney, who should translate the plan into a legal document for the court to approve as a divorce order.
Marriage is a commitment, both emotionally and financially. Breaking commitments almost always leaves someone at a loosing end. The most advantageous outcome is to restore relationships, but this is not always possible. If not, plan before you act. You may end up protecting not only your assets, but also your loved ones.