Ian Wason, the CEO of DebtBusters, South Africa’s largest debt counsellor, warns on troubled times ahead for home loan providers “The increase of just 0.5% will have a massive impact on consumers with home loans. Not only are these consumers already faced with price hikes in electricity, rates and petrol, but many of them are overloaded with unsecured debt as well. This may be the final straw for many of them, and I would expect to see a large spike in defaults on the banks home loan books in the month ahead.”
27 November 2012
Follow this five-point checklist to determine your financial fitness…
1. Have your own retirement savings
Preserve your retirement fund benefits if you leave your employer. Whether your change in employment is due to a step up the career ladder or the decision to be a home executive, make sure that your retirement benefits are preserved.
Don’t be tempted to use your retirement fund to float your household income so that you can afford to stay home. Put a savings plan in place when you start to plan your family to enable you to make decisions without compromising your retirement. Your financial adviser will be able to guide you through the process and give you the best advice on the tax implications and the best savings vehicle for your situation.
Stay at home moms also need retirement plans.
2. Do not ignore disability cover and critical illness cover
·Critical illness cover: This cover is invaluable in assisting you with the financial impact that a critical illness could have on your lifestyle. It could be used to assist your recovery with additional care and support, which could all come at a price such as childcare and/or home nursing.
·Disability cover: This will assist in paying for any adaptations you may need to make to accommodate your disability. It can also be used to supplement your income or to pay for additional help.
·Income protection: If you rely on your salary, income protection will replace your income.
Make a sacrifice now, and pay yourself first, to ensure that your retirement is secure and that you need not rely on your husband’s retirement provision — chances are it will be insufficient to support both of you when he retires.
3. Have your own bank account
In the event of your spouse passing away his account will be frozen and you will not be able to access the funds until an executor is appointed and they agree to release funds as they deem appropriate. This could take a while.
Make sure that you have sufficient funds to cover three to six months’ living expenses in a bank account in your name.
4. Know your legal status
Make sure that you are comfortable with the legal status of your marriage. Understand your ante nuptial contract and what rights and obligations it affords you.
If you are married in community of property; do you know that you and your spouse are jointly and severally liable for any debts incurred, as well as the fact that you own all assets together?
If you are not married and have a so-called “common law” spouse, do you know where you stand financially if you separate?
5. Understand the impact of divorce on your financial plan
Your retirement funds: Your retirement funds are regarded as an asset which will be taken into account when reaching a settlement with your soon-to-be ex. Depending on your marital regime this could mean that you are entitled to a portion of your ex-husband’s retirement fund.
If this is the case; make sure that you involve your financial adviser to ensure that the fund is correctly named in the divorce order as well as the percentage of the fund (referred to as pension interest) that you are entitled to.
Incorrectly wording your divorce order could result in costly delays.
You have the option to either withdraw the funds from your ex-husband’s retirement fund or to transfer the funds to your own retirement or preservation fund. If you take a withdrawal there could be a tax implication whereas if you transfer the funds to another approved fund the transfer will be tax free, provided your tax affairs are in order. Of course the obvious advantage to preserving the benefit is that it will go a long way to securing your retirement.
This rule works both ways and it could mean that your ex-husband is entitled to your retirement benefits. If this is the case, make sure that you complete a detailed retirement needs analysis with your financial adviser to ensure that the amount awarded to your spouse does not leave a gaping hole in your retirement plan.
Committing to additional savings now could mean that you make up the deficit in a few years.
Update your records: A will is a must have in anyone’s financial plan, but it is important that you update it in the event of any life changing event and divorce is certainly no exception.
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.
Michelle Human is Legal Marketing Specialist at Liberty.
Article published courtesy of Liberty Life.