1. Dealing with the grief process
Divorce is a significant 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 for some years and had 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 materials look like. You may also be overwhelmed with the purpose 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 essential documents you will need to represent yourself in the divorce case accurately.
3. Start setting aside funds in case of an emergency. Create a budget and look for ways to reduce your expenses.
If you were not up to speed on the financial matters of the household, you might be surprised to learn that all might not be well. Funds in joint accounts may have disappeared, been squandered, or worse. I recommend 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 organization. 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 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 you subtract debts, a couples net worth is defined as the assets left over that can be divided. Often a contentious issue for separating couples as they are often surprised to learn that the personal debts of their spouses are mutual as well. Understanding net worth will help you to sort out your financial health and on a pension 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 usually a source of comfort and stability not only for the separating spouses but 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 house will ultimately need examination 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 more straightforward to split between spouses than others. For example, CPP allows for a balanced split of pension credits during the time the couple lived together. Means the spouse with the higher credits would have to transfer some their assigned to the lower credit spouse. All applications for pension credit transfers need a referral to Service Canada, and the rules for this are relatively 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 be assigned, based on the amount on the date of separation or breakdown of the marriage. This is the most straightforward of pension plans to split as it bases itself on current values accumulated in the arrangement. 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 bases itself on an income stream instead of 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 the account or can be assigned to an RRSP which offers more flexibility? Will you need to wait for your ex-spouse retires to claim the pension? Is your spouse already on a pension? Who will manage the investment? Can it remain at the premium? 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 before the breakdown. Essential 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 regarding 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 Interdisciplinary Approach
A separation or divorce is life-changing, and the impact of the decision to separate is felt for many years to come. 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 needing attention. Allowing you more time to focus on healing.
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Jackie Porter is a Financial Literacy Empowerment Ambassador with a Specialty with Single Women By Choice Or Chance. If you are over 45, single by choice or chance, living in Canada today and are examining the options for your future, Jackie can help you. As a Financial LIteracy Empowerment Ambassador, her my book and empowerment programs will help assist you in designing a life plan that encompasses not only financial goals but also your other life priorities- such as career, relationship and other personal goals.