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Lesego Thathana
Principal consultant
Alexforbes
How divorce affects retirement savings
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Without careful planning, divorcees can experience setbacks in their retirement planning after divorce.

According to the Botswana Ministry of Nationality, Immigration and Gender Affairs, the country registered nearly 9 000 divorces between 2019 and the end of 2020. When you realise that the young are more likely to be divorced than the married elderly according to research conducted by the Michigan Retirement and Disability Research Center in the United States, alarm bells should sound.

The Botswana context

Upon divorce, either spouse can claim a share of their spouse’s retirement fund in accordance with the Matrimonial Causes Act. The Matrimonial Causes Act, Income Tax Act and Retirement Funds Act governs this process. The value of the preservation fund, pension or provident fund is calculated as the resignation benefit in terms of the fund rules at the time of divorce.

Where a couple is married in community of property, both spouse’s pension interest will form part of the joint estate and the pension interest will be split in line with a court order. Where a couple is married out of community of property with accrual, each spouse’s retirement value will be taken into account in determining the value of their respective estates.

Should you not have excluded your retirement funds in your marriage contract, a portion of your retirement fund may be used to pay your former spouse at the date of divorce. In addition, both spouses will have less disposable income every month as they are now running two households. This leads to less disposable income available for retirement savings. Unfortunately, divorce itself can also be costly and many have to draw on their retirement savings to pay legal bills.

Protecting your future

As soon as your marriage has ended, despite having the burden of providing for a single-headed household, you should prioritise saving for your future. Build this into your monthly budget. The power of compounding is powerful over a longer period of time.

Should you receive a pension benefit from your former spouse’s retirement fund, do not cash this in. Not only will it be taxed, but it could have a great bearing on your quality of life at retirement. You have the option to transfer these funds tax free to a preservation fund, an individual member retirement fund or to your current employer’s fund. With the assistance of an adviser, these funds can be invested wisely according to your risk tolerance for your retirement.

It is important to familiarise yourself on the fundaments of investing. Speak to a financial planning consultant for insight and advice. Ample reading material is also available online or in books.

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Retirement
Divorce
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