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What are the Financial Implications of Divorce?

Any way you look at it, divorce is challenging. Aside from the emotional strain of ending a marriage – especially if you have kids – your finances could be affected significantly. Let’s look at four common steps that can help safeguard your wealth. 

Get a good grasp of your financial situation

Many people have an idea of their overall finances, but when divorcing you should examine bank and investment accounts, credit cards, mortgage statements, loans, lines of credit, etc. to know where you stand financially. Of particular importance is scrutinizing joint accounts ahead of divvying assets. Consider an agreement with your soon-to-be ex (who, for simplicity’s sake, we’ll refer to as “ex”) to continue paying joint expenses, but to avoid new borrowing charges pertaining only to one of you. If either has co-signed a loan or line of credit, request the financial institution remove the co-signer and rework this debt so the appropriate party is solely responsible. 

If you don’t have your own savings or chequing account, arrange for it. Link any direct deposits beyond what you need to meet your share of expenses in the joint account. Also, obtain a credit report to find out your current score. Regarding credit cards and loans, neither divorcing partner should deal with creditors or be liable for debt they didn’t incur. If you and your ex can pay off joint account balances, agree to close those accounts.

Update Policies and Beneficiaries

Divorce may change your insurance needs. For instance, if you become critically ill or disabled and need assistance paying bills, you may require more coverage as an individual compared to having a spouse’s income to cover expenses. Similarly, assess your life insurance needs as an independent policyholder and ensure you’ve got adequate coverage. Permanent life policies often have cash value, so if one exists, include the cash value when dividing joint assets. 

It’s also crucial to review beneficiaries named on financial accounts and registered plans like RRSPs, TFSAs, RRIFs and workplace pensions, and amend accordingly. If you’ve named your ex as beneficiary in your will or as holding certain powers of attorney, you’ll probably want to change that. An estate professional can help you implement planning changes brought about by divorce. If you’re on your ex’s workplace benefits plan (or vice versa), a divorce might lead to rethinking benefits to ensure adequate coverage persists. 

Deal with the Family Home

Discuss whether one of you wants to remain in your home and has the financial ability to do so. Both partners could be making mortgage payments, so the absence of one income may make the exiting mortgage unmanageable, requiring renegotiated financing for the ex who’s staying put. You may choose to sell the family home and split the proceeds, or the remaining homeowner can buy out the other’s share for the amount of equity they’ve invested into it. If young children are involved, keeping them in the family home could help reduce the disruption in their lives that a divorce inevitably causes. 

Work Closely with your Senior Wealth Advisor

Getting professional advice is especially valuable in divorce. An advisor can help identify your assets and liabilities, and calculate your net worth. They can also adjust your budget and wealth plan based on new life circumstances, including recalculating the money earmarked for retirement and revising your goals to put you in the best possible position for financial success. If you need to save and/or invest more (or in a different manner) to achieve your long-term objectives, a senior wealth advisor can work with you to make it happen. Your income may also be impacted by child or spousal support, whether you’re paying or receiving. It’s practical and comforting to assemble a team (e.g., senior wealth advisor, tax consultant, estate planner, divorce lawyer, accountant) that can help you get through a divorce with financial independence and a sense of clarity moving forward. 

Speak to a Senior Wealth Advisor

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This article is a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.

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iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization. iA Private Wealth is a trademark and a business name under which iA Private Wealth Inc. operates.

This is not an official website or publication of iA Private Wealth and the information and opinions contained herein do not necessarily reflect the opinion of iA Private Wealth. The particulars contained on this website were obtained from various sources which are believed to be reliable, but no representation or warranty, express or implied, is made by iA Private Wealth, its affiliates, employees, agents or any other person as to its accuracy, completeness or correctness. Furthermore, this website is provided for information purposes only and is not construed as an offer or solicitation for the sale or purchase of securities. The information contained herein may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces where they are registered.

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