How to Uncouple without Undoing Your Finances

Not every union is a match made in heaven. According to the Vanier Institute almost half of Canadian marriages (41 per cent) end in a divorce before their 30th anniversary. If you happen to among those statistics, it doesn’t mean your separation or divorce has to devastate your future and your finances.

The going rate for a “plain-vanilla” divorce in Canada is just under $1,900–if the terms of separation are uncontested. Throw in bickering and the average cost escalates to $14,000, according to Canadian Lawyer’s 2019 legal fees survey. Factor the division of assets and debts and moving expenses, new living costs and the price of splitting rises considerably.

Here’s how to keep the financial disruption to a minimum:

Get financially savvy…fast

Often one person in the partnership takes the lead in making financial decisions. If you weren’t that person, it’s time to get yourself educated.

First up, understand that Canada has different laws for the division of assets based on the province you live in. For the most part, assets will be split equally based on the date of when the marriage or common-law partnership started. Just remember that some assets increase in value while others decrease. For example, if your spouse offers you the car, currently worth $25,000, in exchange for keeping his pension, currently worth $25,000, the value of the car will depreciate over time while the value of the pension will increase.

To ensure that assets are divided fairly, consider working with a financial planner who specializes in separation.

Create a budget

After a split, your earnings may remain the same, but your cost of living will increase because you can’t share household expenses. A simple budget where you list your basic expenses will alert you to danger signs, such as whether you can afford to continue to live in the family home after a separation. Start by making a budget. (Check out this excel template with benchmark costs. To get a handle on your costs as a renter, consider this primer on common monthly expenses.)

You may need to accept a lifestyle change that involves downsizing. This doesn’t mean you can’t enjoy your life, but it does mean you need to expand your vision of what someone your age should have.

Deal with debt

When you split up, you split everything, including debt. This can be tough to swallow, especially if your ex was a free spender or did not disclose his debts.

If you’re in the unfortunate position of having to pay off half of your partner’s debts, make a plan to do so. There are two schools of thought on the best way to tackle debt: The ‘debt avalanche,’ advises you to pay off the highest interest rate debt first, making minimum payments to all other debts during that time. Once the first debt is settled, pay off the next highest interest rate debt. And so on. The ‘debt snowball’ advises to pay off the smallest debt, regardless of the interest rate charged based on the rationale that the sense of accomplishment will energize you to keep going.

If you don’t already have your own credit card, contact your bank about getting a pre-paid credit card. (If you have little personal credit history or your credit score is below 650 it may be impossible to get any other type of credit card).

To establish a good credit score, make small purchases — no more than 75 to 80 per cent of the card’s limit–and pay off the balance every month. Do this for three-to-six months to establish a good credit score; this will allow you access better loan rates.

Get a good job

For women, one of the most stressful aspects of divorce is the real or perceived financial insecurity. If you had been staying at home to raise kids, you’ve now lost your spouse’s income — and relying on child support and spousal maintenance as a financial plan is a recipe for disaster. (Your ex could decide not to pay the support, or he could lose his job or become ill or disabled.) In addition to the satisfaction of earning your own income, a job can be great for self-esteem can offer the chance to meet new people.

Remember estate planning

The last thing you want to think about when you’re going through a separation is estate planning… but you need to.

  • Review paperwork and file the necessary forms to change the beneficiary;
  • Cancel all joint accounts you hold with your ex;
  • Cancel all credit cards you hold jointly with your ex;
  • Call your insurance agent to change the beneficiary of your life insurance;
  • Call your investment advisor and bank representative to change the beneficiary of any investment products;
  • Call your lawyer so that you can update your will and power of attorney.

Final Word: Don’t make financial decisions based on hurt feelings

Those who end their marriages when they are younger often have decades to rebuild their finances. But those who end their unions later in life often have a much shorter timeline to recuperate savings, build earnings and create a solid nest egg. This can add to the pain and anger of divorce.

Don’t fall prey to this trap of making emotional, rather than rational, decisions. When you opt to fight, the only people who win are the lawyers because they get a bigger paycheque. Instead, figure out a strategy to safely feel your emotions without acting on them. Reach out for help to avoid costly and painful decisions. And, treat yourself with a kindness along the way.

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