What Are the Financial Implications of Divorce?

By iA Private Wealth, May 1, 2024

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.

1. 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. Also obtain a credit report to find out your current score. Link to your individual account any direct deposits beyond what you need to meet your share of expenses in the joint account. 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. Everyone’s heard stories of vindictive exes racking up large bills, so monitor your accounts to keep your assets protected.

2. 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.

3. Deal with the family home. This one may have emotional repercussions as well. 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 existing 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.
4. Work closely with your investment advisor. Getting professional advice is especially valuable in divorce. An advisor can help identify your assets and liabilities, and calculate your personal 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, an investment 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., investment 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.

This article is a general discussion of certain issues intended as general information only and should not be relied upon as tax, legal or investment 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.