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The good and the bad of lump-sum settlementsGuys are not paying maintenance and getting away with it because of the abysmal state of the courts SHOULD you join the trend of taking a cash lump sum as your divorce settlement or stick with the traditional route of monthly maintenance cheques? Lump-sum payments are the flavour of the month in the divorce industry. The ex-spouse (for the sake of simplicity lets say the wife) receives a cash lump sum in lieu of any future monthly maintenance payments. The lump-sum alternative applies only to maintenance of the wife and not to maintenance of the children, where the norm remains monthly payments. Two top Gauteng divorce attorneys I spoke to this week are strongly in favour of the lump-sum option. Allan Levin of Allan Levin and Associates explains why the new trend is currying favour: "A lump-sum payment cuts the knot of dependence. It applies the clean-break principle as the wife is not at the whim and behest of the maintenance provider. "It's also a better option from the husband's point of view as he doesn't have the Sword of Damocles hanging over his head in terms of increases in maintenance." Levin says the court will prefer the lump-sum option in cases where the husband is in a financial position to make a sizeable upfront payment. Colleen Currin of Bowman Gilfillan says the motivation for a lump-sum payment lies in the abysmal state of the maintenance courts. "There's a rising incidence of guys, even the well-educated ones, who are just not paying maintenance each month. And they're getting away with it, because the maintenance courts are in a disastrous state. It can take many months before a case is heard." The benefit of a lump-sum payment to the wife is that it takes away the risk of the ex-spouse not making his monthly obligations some years down the line. Sadly, in SA, neglecting to pay maintenance on time is not taken seriously enough. In the UK, for instance, a non-payer is hunted down like the petty criminal he or she is. Not everyone involved in the divorce industry, however, is convinced that a lump-sum payment is the right way to go. Bryan Hirsch is the managing director of Societé Generale Frankel Pollack and has devoted much time to advising on financial matters in divorce mediation. Hirsch attacks lump-sum payments on three aspects. "First, there's tax. The wife has to invest her lump sum in order to provide herself with a monthly income. "This income is usually in the form of interest, which is fully taxed. Compare this to the tax-free status of monthly maintenance income," says Hirsch. Inflation is his second concern. "What happens is that in order to beat inflation, women tend to go for high-return investments, which of course are the higher-risk investments." But Hirsch's main bugbear is the size of the lump-sum payments - they are seldom big enough to provide an adequate after-tax disposable income in the long term. He cites an example of a woman who received a R1-million payout. After buying a house, she was left with R550 000 to invest. At current interest rates, she receives a monthly after-tax income of R4 000, which is insufficient for her needs. "If you require a monthly income of R10 000, you have to invest a settlement of R1.2-million at prevailing interest rates," says Hirsch. Levin disagrees with Hirsch's sentiments. "The full needs of the wife, including her accommodation requirements, must be taken into account when negotiating the amount of the lump sum payment. The crux is to get your client the best amount possible, within the husband's means." A comment made by Currin is quite telling: "In a perfect world where a client is assured of receiving her maintenance cheque each month, there's no doubt that monthly payment is better. But we don't live in a perfect world and taking the lump-sum option gets rid of any future hassles over non-payment." A lump-sum payment is a viable option only if the spouse paying the maintenance has a sufficiently large asset base, and has the necessary cash flow to make the sizeable payment. Not all wives are entitled to receive maintenance payments. Generally, it's awarded to ex-spouses who will be unable to support themselves financially after divorce. Acceptable reasons include: the lengthy duration of the marriage; not having any marketable skills; and physical or mental disability. The more highly qualified a person is, the less likely they are to receive maintenance from their ex. Divorcing wives who are eligible to receive maintenance should consider the risks and benefits of both payment options. The personal circumstances of the spouses is central to the decision because, at the end of the day, it is a weighing up of risks. As is the case with most divorce agreements though, so much depends on the skill and strength of your divorce attorney in brokering the best deal possible.
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