1. Dealing with the grief process.
Divorce is a major life event that touches all aspects of a person’s well being. Worries about financial security, where you will live, hanging on to mutual friends, family dynamics and lifestyle may all be at risk. Many people going through this process should be encouraged to seek professional counselling. Ask your legal professional for referrals to reputable counsellors so that you can begin the journey of healing.
2. Assembling Key Financial Documents
Your partner has been unfaithful in the marriage more than once. Because you have young children you have has put up with it but can no longer deal with the emotional toll it has taken on the relationship. Your husband is the primary breadwinner and takes care of the bills. You are concerned about your financial well being because you have not worked in a number of years and have no idea about the family’s finances. Your husband gives you an allowance and it has not occurred to you until now, that you have no idea how to pay bills or manage finances on your own. Your lawyer has requested various financial documents and you have no idea what these documents look like. You may also be overwhelmed with the idea of tracking them down. It may be a good idea to enlist the services of a financial organizer, who can help you to assemble the key documents you will need to properly represent yourself in the divorce case.
3. Start setting aside funds in case of an emergency. Create a budget and look at ways to reduce your expenses.
If you were not up to speed on the financial matters of the household, you may be surprised to learn that all might not be well. Funds in joint accounts may have disappeared, been squandered, or worse. It is recommended that you budget 3 to 6 months of living expenses to pay for new and unexpected costs, should income stop or become unreliable during the initial separation. It may be a good idea for you to retain the services of a financial planner to get a handle on this.
4. A Word On Credit
If you are contemplating separation, you need to know where you stand financially. The first step is to identify the debts that will need to be organized. Knowing your credit rating will be particularly helpful at this time as you seek cash to refinance, and to maintain liquidity. Credit scores under 650 will tend to be worrisome and many banks will not want to lend or offer low interest financing if a score is below this amount. Find out what can be done to improve your credit rating. A good starting point is to close accounts no longer used, and ensure you are taking steps to build your own credit identity by having a credit card solely in your own name. Online credit companies like Credit Karma offer free instant credit reports.
5. Understand the value of your family’s net worth.
The definition of net worth is what you owe versus what you own. After debts have been subtracted, a couples net worth is defined as the assets left over that can be divided. This is often a contentious issue for separating couples as they are often surprised to learn that the personal debts of their spouses are also divided equally is well. Understanding net worth will help you to sort out your financial health and prioritize goals as you work toward a divorce settlement with your spouse.
6. Home Sweet Home
A spouse contemplating divorce is often reluctant to leave the family home. It is often a source of comfort and stability not only for the separating spouses, but for the children as well. Determining whether to keep or to or sell the family home can be an emotional decision. Unfortunately, the decision to stay in the home will ultimately need to be examined from a financial standpoint. Points to consider include: will staying in the home affect my financial well being over the long run? Will I be able to carry the costs of and house bills on my own? Will I need to remortgage the property and pay mortgage expenses and fees to remortgage?
7. Pension Considerations
Not all pensions are created equal. Some pensions are easier to split between spouses than others. For example CPP allows for an equal split of pension credits during the time the couple lived together. This means the spouse with the higher credits would have to transfer some their credits to the lower credit spouse. All applications for pension credit transfers must be referred to Service Canada and the rules for this are fairly complex.
On the other hand, Defined Contribution Plans can be transferred to a spouse using a marital breakdown form. Fifty percent of the value of the pension would normally be transferred, based on value on the date of separation or breakdown of marriage. This is the most straightforward of pension plans to split as it is based on current values accumulated in the plan. It is a good idea to get clarification from the administrator to confirm that you have all the documents you need to process the transfer.
Defined Benefit pension plans tend to be the most lucrative of the pension plans especially if they offer inflation protection. They are often the most complex of the pension plans to transfer as it is based on an income stream instead of a value. Issues to consider include: Do you have the option to take the pension funds now in a lump sum? Will the funds be transferred to a locked in account or can be transferred to a RRSP which offers more flexibility? Will you need to wait until your ex- spouse retires to claim the pension? Is your spouse already on pension? Who will manage the investment? Can it remain in the pension? Will the ex-spouse continue to be entitled to survivor benefits? How will the pension benefits of the separating spouse be valued in the divorce settlement?
8. Insurance Considerations.
Another important consideration is for spouses who will rely on their partner’s child support and spousal payments. What will happen if their ex-partner passes away? How will they make up the lost income?
In some cases, life insurance plans were in place prior to the breakdown. Important questions to consider are: Does your ex partner have life insurance in place? Who is the owner of the policy? Is the plan still in force? Consider including life insurance in the terms of the settlement to protect spousal and child support payments and to provide assurance of long term financial stability should the unexpected happen.
9. Changing Beneficiaries and Reviewing the Will
A will is invalid after a divorce. Redoing the will is often overlooked after a divorce. You will need to think through who will manage your assets, protect the interests of their children, and execute their last wishes in the event of death. For example does the ex spouse have joint custody of the child? Will the child live with the ex spouse in the event of death? Will that spouse have access to the funds left on the child’s behalf? How will the income for the child be administered?
10. An Interdisclipinary Approach
A separation or divorce is life changing, and the impact of the decision to separate will be felt for many years to come. Because divorce touches so many areas of a person’s life it can be nerve wracking and all consuming for everyone involved. Face the transition with confidence by taking an interdisciplinary approach. Assemble a team of professionals who can help you to navigate the myriad of issues to be dealt with. This will leave you with more time to focus on healing.
Jackie Porter has been in the financial industry for 18 years serving over 400 families, established businesses and professionals in the Greater Toronto Area. Her practice focuses on investment planning, cash flow management and tax planning. To learn more about Jackie please click https://www.thedivorceangels.com/vendor/jackie-porter/