Financial Planning for Canadian Divorced/Separated Parents

When we get separated or divorced, one of the first things that we notice is that finances have changed significantly. A number of things happen from splitting bank accounts and properties you own to suddenly having to factor in the expense of child support and legal expenses. It can be quite harrowing to see how you’ll maintain your financial freedom as you move from one house-two incomes to one income supporting your kids, extra expenses incurred from divorce (such as additional childcare) and all the other expenses in the day to day.

However, it doesn’t have to be harrowing and there are tips that you can follow that will support your financial freedom and help you adjust to being a divorced or separated Canadian parent.

Tip Number One: Review and Understand Shareable Assets

The first step to financial planning for divorced or separated parents in Canada should begin with reviewing the shareable assets with your ex-partner. You will find that by doing this, you can plan better and make sure that the split of family assets is even between the two of you. In addition, by understanding shareable assets, you will understand what needs to be shared and what doesn’t need to be shared.

So what is an asset? Properties, vehicles, retirement assets (RRSPs and so on), furniture and personal effects can all fall under shareable assets. However, this really depends on when they were purchased and where you reside within Canada. For many, if things were purchased before the marriage, they are not shareable assets and both parties leave with what they came with. However, there can be exceptions to this. For instance, in the case of an RRSP, if your partner contributed to it during your marriage, it may need to be split. Another one can be the matrimonial home. Even if it was purchased before you were ever a couple, it may need to be split at the time of divorce.

In addition, things like gifts, inheritance and similar may not be shareable assets depending on the province that you live in.

The best advice here is to speak with a lawyer for financial planning so you can understand what is shareable in your province and what isn’t.

Before you go and speak with a lawyer, be sure to make a list of all of your assets so that you don’t have to spend extra money going back if you missed something and need to have it added.

Tip Number Two: Understand How the Taxes are Going to Affect You

This is often one of the top things that Canadian parents who are separating or divorcing don’t think about, the taxes. In Canada, both married couples, and common-law couples (if they have lived together for at least 12 months) will face the same tax laws when there is a divorce. This circles around family assets and can actually affect each party when assets are divided during the separation or divorce.

This means that when a couple are separating, the Canadian government may administer tax consequences depending on the value on the asset. It should be noted that value is based on before, during and after the relationship ends so any appreciation and depreciation of an item will be taken into account.

When you are planning for your finances, make sure you take this into account as you will want to factor that into how items are split between both of you since it could lead to some significant taxes being owed for some assets and not others.

Tip Number Three: Make Sure Titles are Switched

One thing to remember in Canada is that if you have shared assets with both your names on it, your ex-partner will have rights of survivorship on those assets, regardless of your will. The only province that does not have this rule is Quebec. To prevent future problems, make sure that any property that you retain after the divorce has all titles switched to you completely. This will also minimize any future problems with your ex-partner if you decide to sell off any assets that you retained.

Tip Number Four: Discuss Shared Expenses

While we’ve been looking at the split of assets, it is important to discuss shared expenses with your ex-partner, especially if you have kids that will have expenses. Talk about what will be covered by child support payments and then anything that comes above and beyond that child support.

Once you know what shared expenses you will have, you can begin to look at your own financials to determine where you will need to save so you are able to get your financial freedom again. It isn’t easy, but understanding shared expenses as quickly as possible, even before you finalize anything in the courts, you can plan for your own future with more ease.

Tip Number Five: Review your Estate Plan

Finally, make sure that you review your estate plan with your estate planner. Do you have life insurance policies? Change the beneficiary or have a trust take care of it for your children. If you have a will, have it redrafted to reflect your current relationship so that everything is set the way you want it set.

Finally, be sure to look at your overall financial goals, where you are at this point, what assets you have after leaving the marriage and what you are earning vs paying out. Create a plan to build back anything you’ve lost during the divorce and what you’ll need to do to build it back.

Creating financial freedom doesn’t have to be unobtainable after a divorce, it just takes understanding of assets, your provincial laws regarding divorce and being set on your financial goals. With some hard work and focus, you can be back to your financial freedom in no time.