Even in the most amiable of breakups, figuring out finances after a divorce can be headache-inducing. Whether it's emotional bonds or financial assets, splitting ain't easy.
And the financial lives of Canadians are becoming ever-more entwined. According to a recent survey from TD Canada Trust:
- 68 per cent of Canadians in a serious relationship have a joint bank account
- 64 per cent have a shared financial plan
- 52 per cent have a joint credit card
- 72 per cent own a home together
Nearly a quarter of divorce proceedings last longer than two years, which makes it increasingly crucial for newly-single Canadians to regain financial stability as soon as possible after a split. "It's important for newly-single Canadians to stabilize their financial situation after a break-up so that they don't start taking on debt," says TD Canada Trust senior vice president John Tracy.
There are several steps people can take to ensure their finances are intact when their relationship isn't.
The style of breakup
Jim Doyle, senior financial consultant with Vancouver's Investors Group, says for those just about to embark on divorce proceedings, it's important to look at various approaches: a litigious model, a collaborative approach or a mediated process.
"How you choose to enter into that process has a significant effect on how you come out the other end," Doyle says. "Imagine a litigious type of scenario. Your spouse and yourself end up with agreements that are typically not entirely desired by either side, and the situation is kind of forced onto you.
"A collaborative approach, where you're able to talk through the situation and bring in divorce coaches to help keep emotions at bay, helps keep conversation going and you can see what the results are going to look like."
Online tools such as My Support Calculator can give a clear sense of financial obligations for alimony and child-support payments.
Understand your position
With joint assets and liabilities, it's vital to work out their division and be completely clear on what liabilities you'll be responsible for. It's not just enough to break things down into "who gets what" but to look at the long-term consequences of those divisions.
"What is often asked for may result in one party ending up financially destitute and the other enjoying financial enhancements. Explorations of consequences of divisions are essentials," Doyle says.
Be sure that future expenses, such as the cost of kids' education, are taken into account as well, Doyle adds.
Move forward slowly
"Recognize there are a ton of emotions, and anytime you make financial decisions when emotions are involved, you might not be making the clearest choices," Doyle says. "Avoid unrealistic expectations."
For instance, he says it's common for those who have recently split up to want to go out and buy real estate. Doyle suggests taking some time to rent first, even if it's just for a few months, to get a sense of exactly what your new financial picture looks like.
"It might take a little while before you get a pattern established," he says. "Divorce is a significant change, and you'll need to determine what your cash flow looks like with new circumstances. What are you new financial priorities? Where is your money going?"
Write it down
To help get a precise view of cash flow, Doyle suggests tracking expenses.
"You might have been accustomed to spending a certain way, and some expenses might come up as surprise; maybe your partner always paid the car insurance or property taxes."
Tracking expenses also helps with establishing a budget and sticking to it. Online calculators can help with both.
It's common for spouse's to co-ordinate employee benefits, especially if one partner has wider coverage, but when you lose your spouse you also lose those benefits. "If you had benefits through work there may be certain periods when you can re-enroll. This is a crucial but often overlooked aspect of divorce."
If your partner was the one who made all the financial decisions, from what types of funds to invest in to how much money got put away every month, and now you're in charge, you might need guidance from a financial planner, advisor or bank representative who's educated in divorce and division of assets.
"If you lost a partner who was your financial ally and now you're making decisions on your own, that can be a daunting task. We see a lot of this with gray divorces," Doyle notes. "Find out what your risk profile is. Focus on strengthening your investment knowledge. What are your goals as single person? How important is it that you save for the short-term, intermediate and long-term? What decisions can you comfortably make?"
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