How divorce can devastate your finances

No one wants to think about divorce, but with one in three marriages ending that way, it’s important to consider the consequences of an irrevocable break-up. While the end of a marriage is certainly devastating from an emotional perspective, it can also be detrimental from a financial one.

Here are some of the critical financial and other implications that must be considered when a marriage ends.

Immediate financial issues Close your joint accounts and open an individual account. Also cancel joint credit cards and any automatic payments being made on behalf of the ex-spouse, including spousal RSP contributions. 

Your legal right to finances  Generally speaking, when a couple separates, the parties are entitled to a division of assets. The calculation regarding what is or isn’t included varies between the provinces. In some provinces, even assets acquired before the marriage are shareable, and in other provinces assets acquired even after the date of separation, but before the date of divorce, are included. Both parties should receive legal advice before agreeing to anything.

The rules regarding a division of assets upon the dissolution of a common law relationship vary dramatically across the country. In some provinces, partners are entitled to the same division of assets as a married couple once they have lived together for a sufficient period of time. In other provinces, former partners are not entitled to a division of assets no matter how long they have lived together.

Assets to consider When it comes to assets from the marriage, there are a number of things to consider dividing, including the family home, a share of government or workplace pensions that your spouse contributed to during the marriage, funds accumulated in an RRSP and other properties or investments.

Spousal support Both men and women can apply for spousal support. Generally, spousal support is deductible to the payor and taxable in the hands of the payee. Child support, though, is not taxable to the parent who receives it and is not deductible for the person who pays it.

Tax implications Even for separating couples with modest assets, there are many tax issues that should be considered. Cottages, RRSPs and other investments may be split up – but they could be taxed in the process.

There may also be a number of tax credits and deductions you may be entitled to, but only if the agreement is properly structured.

Estate implications  Rewrite your will, otherwise your separated spouse may be entitled to your estate if they are named in the will.

A divorce is hard on the emotions – make sure it isn’t hard on your finances, too. Talk to your professional advisor to get the help you need to make sure you get your fair share.