Probably one of the most emotional and challenging events in a person’s life is having to deal with a marriage breakdown.
Not only is it emotionally draining, it is also the reality of selling the house, splitting financial assets and the simple fear of the unknown. In my opinion, the top three biggest personal fears are: death of a loved one, a critical health related illness and divorce.
A Universal Issue:
Divorce isn’t just an issue here in North America, it is actually more rampant around the globe. The nations with the highest divorce rates are those in European countries. The global leaders in divorce are Belgium, Russia, Hungary, Czech Republic, Portugal and Spain, and amazingly, divorce among married couples range of 60-70 percent in these countries.
In Canada however, the numbers don’t look as bad in European countries. According to Statistics Canada, more than 100,000 Canadians get divorced every year and 43% of marriages end in divorce before the 50th anniversary.
So if you find yourself among the 43%, or if you believe you’re headed there, it makes sense to find some time to learn about the financial implications of a marriage breakdown.
For full disclosure, I am not a family lawyer, so getting professional advice is your first step but having an idea of how the process works is generally well received within our practice. Each province has its own rules for dividing marital property. Generally speaking, most jurisdictions assume that each spouse contributed to the family assets. Therefore each spouse will be entitled to a portion of the family assets, regardless of who actually paid for them. The biggest challenge is determining equitable division of the marital assets and it is not always a fair division.
Before You Marry:
I know it sounds cold, but it makes good financial sense to take a snap shot of all your assets prior to a marriage, put the net worth statement in a safe filing cabinet and hopefully you will never have to refer back to it. What happens in most cases of our clients that are either separating or divorcing, is they call and ask us if we know their values on investments and insurance policies from 10-15 or 20 years ago. It is extremely hard to find out valuations going back decades and not only from your investment portfolio, but also for those in business, having to put together corporate valuations and asset values from years gone by, can be a painful exercise.
Another big challenge I see with divorcing clients is dealing with debts. This may be the one of the causes leading up to divorce. One idea worth exploring is to pay off marital debts before filing for divorce. This requires having a candid conversation with your spouse and agreeing to accept responsibility equally for loans, credit cards and automobiles.
In most cases the family home is a joint asset and usually the mortgage debt is jointly held. Once you separate and start looking for your own space, you may decide to own, then the new mortgage qualification is solely on you. Having excessive credit card and automobile debt will dramatically hurt your ability to borrow money. The banks are typically quick to lend when times are good, but when times are tough; it seems they tend to get a little more nervous. Keep your banking advisor in the loop and it’s good to ask them for help when it comes to your future borrowing needs.
When it comes to retirement assets, pension plan assets can be divided, and/or ex-spouses can be bought out of their portion with some planning. RRSPS are easy assets to split, the value owing can be simply split and separated between divorcing partners without any tax implications.
Finally, if a divorce is pending and you need to find a place to live, it may good idea not to rush into buying a new property too quickly. Take some time, talk out multiple scenarios with advisors you are working with. In some cases we have advised clients to possibly rent and take a year or so to find out what road their life is taking. Rushing into buying a property only to sell it within a year or two, may not be a profitable option.
This article is simply some basic information and we highly recommend always seeking legal advice before acting on any recommendation from a financial professional, a friend or confidant.