Getting divorced? How to prepare your finances and protect your assets

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More than 40 per cent of marriages in Canada end in divorce, which can be an emotionally charged life transition since your lifestyle, housing and financial goals can all be upended, making the process of separating finances onerous and exacerbating.

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Separating emotions from critical financial decisions can be difficult at the best of times, but is especially complicated when working through a divorce. Working with a wealth adviser can add an objective lens when navigating your uncoupling and can help you better plan for financial security in the future.

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Gathering resources

Before you begin the divorce process, consider the shared assets and debt accumulated during the marriage that will need to be divided during the separation. For example, if a couple took on a mortgage to purchase a matrimonial home, the home’s value and the debt taken on to purchase the property will need to be split between the couple regardless of who paid for it.

Other financial considerations may include the appreciation in investment portfolios, other real estate properties, pension assets and the value of a business. Depending on how they were treated during marriage, gifts and inheritances may also need to be divided.

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The division of art and antiquities, precious metals, the cash value of insurance policies and even loyalty reward programs such as Air Miles are sometimes overlooked and will form part of your net family property.

While not on the balance sheet, other considerations should include the potential impact to your health insurance coverage if you are transitioning out of a marriage and were dependent on your spouse for this coverage.

Protecting your assets in case of divorce

Although only eight per cent of Canadians claimed to have signed prenuptial agreements in 2017, according to an Ipsos survey, the trend is shifting, with an increasing number of young adults, especially women, requesting prenups to cover property protection, spousal support and the division of assets in case of divorce.

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Like any other contract, a prenuptial agreement can benefit couples by encouraging early communication, potentially avoiding costly legal disputes, reducing stress and uncertainty and increasing the chances of a clean separation of assets later on.

Although prenups cannot cover everything, they can help simplify the divorce process and alleviate some of the financial and emotional burdens.

If you do not have a prenup, keeping thorough records of the assets you owned before marriage and keeping gifts and inheritances separate from marital property are simple ways to protect your finances. For more sophisticated methods of protecting assets, life insurance, corporations and trusts may also be used.

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Some couples may forgo marriage entirely and choose a common-law arrangement to reduce financial risks since the law treats common law differently than marriage.

For example, depending on the specific laws of the jurisdiction in which the couple resides, the partner who purchased the home could be considered the sole owner of the property. However, if the other partner made contributions towards the purchase or maintenance of the home, such as paying bills or making improvements, they may be entitled to a portion of the property’s value upon separation.

Aligning child-care responsibilities

One of the most common concerns for couples during a divorce is their children, and it is critical to consider their emotional and financial well-being.

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Determining child support costs in Canada is mostly formulaic and is calculated by considering each partner’s annual gross income, the number of children in the family and custodial arrangements. Other considerations include the cost of child care and extraordinary expenses such as private school and extracurricular activities.

Calculating spousal support costs is more complex and considers a number of factors such as the length of the marriage, ages of the spouses, gross income, financial needs of each spouse, whether there are children and child support, and more.

A couple should find solutions that best suit their family’s circumstances when constructing separation and parenting agreements, keeping in mind factors such as safeguarding the familial home for their kids, considering the location of their new homes and workplaces, insurance policies for support payments, and their custodial and visitation rights.

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Transitioning from family income to a single income

The financial and lifestyle changes that result from moving to a single-income household can be overwhelming, but working with a wealth adviser can prepare you to manage the expenses attached to the process, make informed decisions about dividing assets and devise a new financial plan based on your revised priorities and life goals.

Whether it is providing recommendations for lawyers or mediators, checklists and budgeting worksheets, or even sample parenting and separation agreements, wealth advisers can provide valuable tools and information needed to consider your next steps. They can also work with your other advisers such as accountants to review the impacts of a divorce from a tax perspective.

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Beyond helping you work through any financial concerns, a trusted adviser can provide much-needed emotional support during these tumultuous times and guide clients thoughtfully in the right direction.

This may mean encouraging a couple to attend mediation rather than going through a costly legal battle and providing support and resources for children, including budgeting for counselling to help support the family’s mental health during this difficult transition.

Ultimately, it is important to remember that you are not alone in this process and the more you lean on the support systems around you, the lighter the burden will feel.

Ida Khajadourian is a portfolio manager and investment advisor at Richardson Wealth. This article is not intended to provide legal advice.

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