Five ways to avoid a covidivorce over money
Pat Magadla, Senior Business Development Manager at Old Mutual Investment Group, offers couples tips to improve their financial outlook post-COVID19 lockdown.
15 April 2020: As countries around the world aim to ‘flatten the curve’, many couples stuck at home together for three weeks or longer are facing extreme interpersonal strain.
It’s reported, that an increasing percentage are succumbing to overwhelming money pressures, making it more likely for them to consider filing for divorce.
In early April, the Financial Times reported a steep increase in the divorce rate post lockdown in China. In New York, a city hard hit by the virus, divorce lawyers are estimating a fifty percent rise in inquiries in recent weeks. According to Pat Magadla, Senior Business Development Manager, Old Mutual Investment Group, while it’s too soon to say, there’s good reason to believe that South African marriages could follow suit.
“Of course, not everyone is calling it off exclusively over cash, but money certainly is a leading cause of conflict. Some have lost their jobs, others large chunks of their income. Even when salaries are relatively secure, those with the means may well have to support struggling family members for some time to come,” says Magadla.
Interestingly, reports suggest that in most cases, the issue is less about having insufficient cash but more related to disagreements about how to manage the available money. “This point highlights the importance of adopting an “our money” approach as opposed to “my money” language, and talking openly with your partner about shared finances during the lockdown.”
Magadla provides couples with five tips to navigate their finances and improve their chances of making it through these stressful and unprecedented circumstances together.
1. Take stock of your situation
Start by discussing how each of you will be affected by the lockdown and its economic aftermath. Magadla says, “it’s important that you both fully understand the impact on your household finances and your new pressure points rather than operating on assumptions or blindly hoping things will just work out”.
2. Agree on rules and goals for the new normal
Perhaps one of you has lost income, but the other can save by working remotely during lockdown (the cost of commuting, both in time and money, can be surprisingly high). Potentially, you may need to dip into your savings. “Whatever your unique situation, get clear on what you want to achieve during this time and exactly how you’re going to do it.”
Ideally, you want to still keep putting money aside for contingency. If you are fortunate enough to be in this position, investigate and make use of a tax-free savings account, advises Magadla, who explains that “you’ll pay no tax on interest, dividends or capital gains on up to R36 000 per year with a R500 000 lifetime limit”.
3. Retool your household budget
Once you have a clear picture of your income and have agreed on your goals, you’ll need to adjust your budget. If you have been splitting costs 50/50, you may well have to revise this split to 30/70, for example, to reflect your new reality. Be clear about who is responsible for which expenses. You can always set a date to review this breakdown, says Magadla. This exercise will reinforce a team-based approach to your finances and can, unsurprisingly, bring couples closer.
4. Avoid debt (as far as possible)
Depending on your circumstances, this one could be really tough. But it’s the principle that matters. “Always be mindful of the danger of ‘bad debt’ – any credit you take to buy things that lose value quickly and don’t generate long-term income,” explains Magadla.
The South African Reserve Bank (SARB) has recently given South Africans reprieve with two rate cuts of 100 basis points each, this is an opportune time, if your situation allows, to pay off as much of your debt as possible.
5. Look beyond lockdown
COVID-19 is dominating just about every aspect of our lives at the moment, but it won’t always be so. Daring to think long-term and taking decisive steps can turn even a crisis into a real opportunity to improve your shared financial future.
“To do this, you’ll need to understand your own and your partner’s appetite for risk,” says Magadla. “Diversify your investment portfolio to include shares, bonds, property, physical property and offshore exposure.”
it’s important to get a financial coach that will guide you in making the right financial decisions for you and your partner.
Speak to an accredited adviser today.
Click here to get in touch with an adviser.