This article first appeared in Wealth, The Edge Malaysia Weekly on May 27, 2024 - June 2, 2024
While most fairy tales often end happily ever after, divorce can leave single mothers and women facing a harsh financial reality. Legal costs pile up and often unreliable spousal support offers little comfort, especially for those with children.
Just how many women are put in such a tough spot? Datuk Seri Mustapa Mohamed, a former minister in the Prime Minister’s Department, once said there were about 910,091 single mothers in Malaysia, based on the 2020 census.
The population pyramid, which can be found on the official website of the Department of Statistics Malaysia, shows that there were about 11.13 million women in Malaysia aged 19 years old and above in the corresponding year. This means about 8% of the women were single mothers in 2020.
Financial stress can take a toll on single mothers, on top of emotional turmoil. The Belanjawanku 2022/2023, an expenditure guide for Malaysians compiled by the Employees Provident Fund, estimated the monthly budget for single parents with one child in the Klang Valley to be RM4,740 and RM5,650 for two children.
Not to forget that the divorce procedure itself comes with a cost. The more complicated a divorce case is — such as when both parties disagree on the division of assets, financial support or child custody — the more expensive the legal fee will be.
According to various online sources, contested divorces take a minimum of a year to finalise and may cost up to RM50,000 or more per petition. Uncontested divorces, or joint divorces, take about three to six months in general to be finalised and may cost between RM3,000 and RM8,000 per petition.
Hence, it is increasingly important for women to equip themselves with financial knowledge as it would help them to better prepare for unexpected events, according to experts in the financial planning and legal fields.
A personal sharing on divorce by a financial planner
During an interview with Wealth, Linnet Lee, director of financial planning firm Resolute Planning Sdn Bhd, shares her experience of having gone through a divorce over 20 years ago.
It was challenging, especially when she had to juggle childcare and financial burdens. The divorce happened during the Asian financial crisis in 1997, when her ex-spouse lost his job, eliminating any possibility of spousal support.
Lee had to offer her young daughter a choice: spend less time with her mother, who would bury herself with work and earn more for a better living, or spend more time with her mother and live a less comfortable life.
“I had to explain the costs to my daughter, who was eight at the time. I asked her if she wanted more of my time or more money to spend. And she told me she wanted more of my time. It wasn’t a sacrifice and I don’t regret it. She grew up to be a wonderful girl,” says Lee.
Lee focused on work and house chores during that period to distract her mind from the divorce. At one point, Lee considered going back to live with her parents, but they wanted her to take accountability for her divorce, so she decided to brave through the process alone.
During a time where divorces were rare, Lee recalls having to manage financial matters by doing the math without anyone’s help. She had even lost friends in the process because of her divorcee status.
Living in an era when the internet wasn’t as common and Google was non-existent, Lee recalls going to the library to borrow reading resources on how to plan financially for her divorce.
The library, where Lee’s mother would often bring her to as a child, offered her some comfort during the period and acted somewhat as a sanctum for inner peace.
“Those days, [information wasn’t readily available] so it was quite nice being in the library as it was peaceful and quiet as you looked through the shelves [for resources],” says Lee.
Speaking from experience and as a licensed financial planner, Lee says women should equip themselves with financial planning and legal knowledge that can help them know their rights and assets, as in the case of a divorce.
Cash flow is the most basic but often neglected thing that one should keep an eye on, says Lee. “In short, it is your income versus expenses. It is important because you need to know whether you are spending more than your income or whether your income is more than your expenses.”
We should then look into our net worth, which involves evaluating the difference between assets and liabilities. Starting clean with a positive net worth is always way better than having debt, she adds.
Following that is protection, which means emergency funds and insurance policies that protect a person from unexpected events, including accidents and medical emergencies.
We can then kick-start our investment journey once all three aforementioned items are covered. “You can go into investments to grow your wealth after that,” says Lee.
Irrevocable trust for divorce
Aside from that, women can set up an irrevocable trust to safeguard their assets during divorce. These trusts designate beneficiaries — usually the children — and assets permanently, ensuring they remain outside the court’s jurisdiction in a divorce settlement.
However, we need to have some financial knowledge to understand how a trust works and how the money in the trust is invested to generate decent and sustainable returns.
“That is why financial planning is very important because one of the areas to make sure that your trust can go on is to have [legitimate and sustainable] investments. The return on investments will help to pay the fees,” says Lee.
A common misconception is the assumption of definite maintenance and child support from the spouse during a divorce.
“Legally, that is true but, in reality, things don’t work out like that. Make sure you are well prepared with financial knowledge and have your documentation set aside not only for estate planning but also for court proceedings,” advises Lee.
She suggests that women give it a year or six months to start financial planning before asking for a divorce. The question remains whether she can bridge the gap between surviving on her own income and living on her husband’s earnings.
Collaborative law and financial neutrals
As far as divorce is concerned, we have no choice but to get involved and look into the legal side of things. These could include legal processes, negotiations and more, which can be complex.
This is where collaborative law comes into play to facilitate better outcomes for divorced couples, says Goh Siu Lin, partner at Kee Sern, Siu & Huey and a trained collaborative lawyer with the International Academy of Collaborative Professionals (IACP).
She adds that collaborative law offers a more civil alternative to navigating divorce through the court system with family consultants playing a vital role in this process to facilitate communication and manage emotions.
During the initial high-emotion stages, the collaborative approach allows each party to process their feelings and reach a more rational state, which paves the way for productive conversations even when tackling difficult and unpleasant topics.
The conversations aren’t a walk in the park as the parties involved have to go through difficult issues that have made a family fall apart, says Goh.
However, those who have chosen collaborative law are happy with the process, says Goh. It prioritises open communication and working through issues, which empower couples to achieve closure and make future-focused decisions about asset division.
“Sometimes people make financial decisions based on emotions. When making financial decisions, you need to know what your family values are. These values will guide you in making these kinds of different financial decisions,” says Goh.
While the law provides a framework, couples are free to reach agreements that best suit their family needs, allowing them to depart from a strict 50-50 split.
The role of a financial neutral is vital in collaborative law pertaining to divorce settlements. A financial neutral is an independent financial expert who works with both parties during the mediation process and is typically a specialist financial planner with experience working with divorcing couples.
“Additionally, the financial neutral can advise on the tax implications and benefits associated with these costs. Practically, they help determine how these expenses will be paid, whether through a joint account, separate contributions or a pre-agreed annual budget,” explains Goh.
While the court is an option for divorce, Goh emphasises that collaborative law or mediation are preferable starting points for smoother resolutions that prioritise the children’s well-being and maintain goodwill between parties.
“What people usually fall into is going into a revenge pattern. And the court is a war arena, which is the worst place to be for families. At the end of the day, what is valuable in the family or relationship is the extended family network and the children,” says Goh.
The issue with spousal maintenance
In Malaysia, courts award spousal support, referred to as “maintenance”. The wife’s needs and means are both considered, says Goh Siu Lin, partner at Kee Sern, Siu & Huey and a trained collaborative lawyer with the International Academy of Collaborative Professionals (IACP).
Needs include living expenses like transportation and could potentially involve a financial advisor to create a budget or recommend savings and insurance plans. Means encompass her employment status, income from other sources like allowances, dividends or inheritances, and her ability to be self-supporting.
“This approach [of considering needs and means] ensures a fair assessment of both the wife’s financial situation and the husband’s ability to provide,” she says.
In divorce settlements, courts do consider a spouse’s non-financial contributions, especially for homemakers who took career breaks to raise children. This includes childcare and household duties, typically proven through witness statements, photographs or third-party accounts, says Goh.
However, obtaining spousal maintenance can be a challenge. Many divorced women and single mothers are left to fend for themselves and their children amidst rising costs of living and education expenses when their former spouse fails to pay maintenance, she says.
“When spousal maintenance payments are neglected, the recipient cannot rely on the court to collect the owed funds. Instead, they must seek enforcement of the existing maintenance order through the court system,” she adds.
Goh says enforcement of the maintenance order can take several forms, with garnishing (serving notice on a third party for the purpose of legally seizing money belonging to the debtor or defendant) bank accounts, attaching the payer’s wages or initiating committal proceedings being the common options. However, each of these options comes with drawbacks, including additional legal fees and lengthy court wait times.
“So, some women pursue it and some don’t. What they normally do is either give up because it’s too costly to pursue. [If they do pursue it], they’d have to wait for the matter to mature and for payment to be made. Because even after you get the enforcement proceedings, sometimes it’s also difficult to serve on the husband as they may disappear or leave the country,” she says.
Sherry Sheriff, co-founder of Wahine Capital, who had previously worked with Telenisa for five years, notes that there are many cases where spousal maintenance is not paid. The only option women have is to go back to court and ask for an order for enforcement.
Wahine is a digital vault provider tailored to meet women’s financial requirements while Telenisa is a free legal advice service on matters related to Islamic family law.
“What I think is very useful is to freeze driving licences [in the event that maintenance isn’t paid]. Maybe Malaysian policymakers and lawmakers can look into it to compel payment, because if you don’t pay for your family, your children suffer,” says Goh.
The current system disadvantages women seeking enforcement of maintenance orders due to the financial burden of litigation. Potential solutions include government subsidies, legal aid support or even litigation funding loans. This would empower women to access legal representation and overcome financial barriers, she adds.
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