The Financial Consequences of Divorce

Financial planners are anything but pessimistic; however, we do have a way with numbers. So, why are we devoting this article to financial planning during separation and divorce? It’s simple math, really; one in three marriages ends in divorce. There are financial consequences of divorce, and we believe it’s our ethical duty to keep you informed should you become one of those statistics.

Get expert advice

If there was ever a time in your life when you needed expert advice, this is it. Even if your divorce is amicable, it’s never advisable to attempt to reach a settlement without trusted advisors, including a lawyer, an accountant and a financial advisor. If that sounds expensive, keep in mind that the cost in fees could be far less than any potential tax costs or legal implications down the road.

Separate emotional loss from financial loss

First and foremost, humans are emotional beings.? But, in the very real nuts and bolts of divorce, there are often dire consequences of emotionally charged behaviour. Costly legal battles may eat away at your financial assets, and court disputes are often time-consuming and lengthy. That can translate to “too little, too late” for one or both partners in the divorce.

Even if your divorce is amicable and you just want to get on with your life, you should never make decisions based on a handshake or verbal agreement. In today’s digital age, it is also advisable to never agree to anything over a text, email or even a voice-recorded message!? ?What you agree to may not stand up legally and, most importantly, you may be agreeing to less than you are entitled to receive.

Deal with the emotional side

Divorce is one of life’s great interruptions and as such, has a very real and personal side. Anger is a destructive force that can make you give up on your financial rights. Often guilt from either party, losing your self-esteem, fears, or simply impatience can make you want to give in to what is rightfully yours, and more importantly, rightfully your children’s!?

Divorce is a loss, and loss is grief that can cause a devastation that is debilitating.? The hurt can be so deep that it feels like your heart is failing.? There are all sorts of thoughts and feelings such as: anxiety, frustration, devastation, fear, sadness and depression, and all can be very frightening keeping you awake at night. Humans have a right to feel and need to talk about all losses to someone. ?You do not have to go through this emotional life interruption alone.?

Do not shelf your thoughts and feelings - grief

Sometimes you may feel all alone in this divorce, and no one understands what you are going through.? Many people offer advice on the different types of support you need for this loss and grief, and it must be a person or a resource that best suits your needs.? There are organizations, support groups, books, grief and trauma coaches and specialists that focus on divorce, and other professionals that can help reduce the stress and anxiety of divorce.? It is important that you explore their background before deciding.? Having someone to lean on helps you to stay focused and in control.? You are not losing it.? You are not going crazy, and you do not necessarily need therapy.

Divorce takes time and you should never be expected to hurry through the process at the behest of the other party.? Decisions made in haste, are never in your favour.? Since we all have thoughts and feelings, we grieve at different tempos.? It is important to own your process and your time, to not be coerced to subscribe to someone else’s timeline.? It is never in your best interest.??

Become financially savvy

Whether you are headed for a separation or divorce, or even if your marriage is very much intact, you need to be aware of your full current financial situation, your savings, chattels, and investments.? Divorce is a give-and-take process, and until you have a full understanding, and a clear picture of your entire life, you cannot make the best decisions as you negotiate a fair and equitable settlement.? When you stay clear, focused and in control, you will be able to break things down into manageable tasks.? For example, you will be able to divide things into two households which will mean determining your living expenses moving forward.

Here are some questions you should know the answers to:

• Do I have a real picture of the costs of running the home?
• What is our current financial situation? What are the outstanding debts and current assets?
• Who is going to get the cottage?
• What happens to the family business?
• Who gets to keep the pets?
• What are our future goals and plans? How will we get there?
• Have we considered our life’s stages in the plan (e.g. buying a home, our children’s education, our retirement, future health care costs, etc.)?
• Do I have a realistic economic picture of what things cost now and will I have enough to retire?
• What would happen if I or my partner became ill and couldn’t work? Do I have coverage for short-term and long-term illnesses?
• Do I know who the beneficiaries are for any registered investments, insurance policies, pension plans and the Will?
• Where is a copy of our Will?
• What assets and liabilities are you aware of (including reward points, memberships, and other perks that may be considered an asset)?
• What happens to the Will?

This is a small checklist, a snapshot of the myriad of questions you need to have answers to make any decisions about your future, good or bad.? Knowledge is power at these times.? Working with a professional financial advisor will help you through this process, most of the time at no cost to you!? Ask your financial advisor to recommend someone you can also talk to as needed.? Once you have the answers to all these questions, you need to document the information and keep it regularly updated. Again, a good financial advisor will help with this process.

Did you know?

• Some assets that seem equal may not be. A $50,000 car is not worth the same as $50,000 in an RRSP.? Calculations of pensions, investments, business assets and real estate holdings are not for the faint of heart.? Trust me when I say every dollar spent with an accountant or financial advisor on this will pay thousands in return. Make sure you know real values before divvying up the assets. An asset with an inherent tax liability is worth less than an asset with no tax liability. Ask us to show you a comparison.
• Spousal support payments have different tax implications than child support.? Do you know the difference?? Is a lump sum payment better than ongoing support payments?? What are the pros and cons of each? ?
• In many provinces, an estate share listed in a will to a former spouse is considered null and void once you are divorced. If you should die before the divorce is finalized, however, the provisions in an unrevised will are applicable. That means, if you originally willed everything to your spouse, and didn’t change the will after a divorce, that’s how your estate will be dispersed.
• The provinces have child support guidelines that apply during separation agreements; federal legislation deals with child support on divorce. That means you need separate agreements for separation and divorce.

Ask the experts

• Your financial advisor can help clarify information about your current financial situation. He or she can work with you to realign your savings and retirement goals, based on your new set of circumstances.
• A tax accountant can review your separation and divorce agreements to see if any issues have been missed and to keep you aware of any tax implications.
• A lawyer can make sure you legally get what you deserve and that your former spouse pays you what is yours, within the court-appointed timeframe.
• A trusted person can be a coach, counsellor, trauma specialist, clergy or those qualified to be of help specializing in loss.? Finding someone who can and will listen proves helpful.?

No matter what the reasons, separation and divorce are emotional. At an emotionally charged time like this, some very important financial decisions need to be made. Let the professionals focus on your new financial picture, so you can take the time you need to focus on yourself.

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For more information and advice on this topic or other related topics, contact:

Laurie Martin, CTTS, EPC, Life Interrupted Inc., and Darren Ulmer, CFP, CLU, CFP, White Owl Financial Solutions