Even if you’re splitting amicably, you could face a long and expensive separation or divorce ahead. With lawyers and other professional service providers in the mix, both sides are going to be shelling out a lot of money. And if the split isn’t exactly friendly, the more those fees will rack up.
If your marriage or common-law relationship has come to an end, it’s likely going to cause additional strain on the wallet — in the immediate future and in the years to come. Whether you’re separating (where you live apart without legally ending your marriage) or divorcing (which legally ends your marriage), you’ll want to talk to your lawyer about a separation agreement. The costs can add up.
But it’s not just about legal fees. You’re no longer sharing expenses, and you may have kids or family overseas to support. Run the numbers before you negotiate a separation agreement and don’t be too generous. Rather, understand your cash flow so you can make wise choices for yourself before you sign on the dotted line.
While you’ll want to consult with legal counsel, an accountant and possibly a financial advisor, here are some financial considerations if going through a separation or divorce:
1. Understand the true cost of divorce
While lawyer fees will likely be your greatest expense—and somewhat beyond your control—don’t forget to set aside money for other expenses, such as filing fees, discoveries, appraisals, mediation and valuations for joint assets (especially if you have a family business). You might also have to refinance a loan or mortgage, or pay for mental-health support such as therapy sessions.
2. Understand your (shared) debts
Your separation agreement is the financial contract you’ll live by, so consider getting advice from your legal counsel when negotiating any shared debts including mortgages, personal loans, car loans, credit card debt and any unpaid bills or property taxes.
3. Understand your credit rating
When you terminate joint bank accounts or shared credit cards as part of your separation agreement, you’ll want to start thinking about your credit rating—which could mean establishing or improving your own credit rating. Try to make it as robust as possible, because as you move forward in life you may want to apply for a loan, and it will only help you to have a strong rating.
4. Think beyond spousal or child support
While spousal support and child support payments can help pay the bills, what happens if your ex loses his or her job (and benefits), or is injured and no longer able to work? Talk to your legal counsel about how to approach this when negotiating your separation agreement (including life or disability insurance) to cover all your bases.
5. Don’t rush to cash in your retirement savings
It’s tempting: your investments can help you cover those divorce costs and get you back on track. But you could end up owing a big chunk of change to CRA. Plus, you’ll be eating into your retirement savings, which you may regret down the road. Try to cover your expenses from current accounts or liquid assets if at all possible—and talk to your accountant and/or financial advisor if you need advice.
6. Consider all your options with the family home
Figure out if you can afford to live in your home without your ex. Would you need to refinance, or could you supplement your income by taking a roommate or renting part of the house? Owning a home may be part of your longer-term savings plan. In some cases, however, it may make more sense to sell the house, split the money or downsize.
Don’t forget, if you agree to pay a lump sum settlement for future bills (like university for the kids), this could impact your ability to make a down payment and secure a mortgage on a new home. Run the numbers based on the down payment, new cash flow and ongoing expenses for one person.
7. Don’t go with the flow
There are many instances in life when it makes sense to go with the flow. This is not one of them. You might feel intimidated, overwhelmed or ready to throw in the towel, but don’t agree to the first settlement offer without consulting your advisors just to get it over with. Be sure to speak up for what’s in your best interest—because it will affect you for many years to come.
Nobody looks forward to the paperwork, long discussions and financial challenges that come with separation or divorce. But by making smart and calculated decisions, you can be a step ahead of unanticipated issues, and come out the other side feeling financially independent and ready for the next chapter.
How Wyth can help
If you’re negotiating a separation agreement, we can help with a High Interest Savings Account (HISA) - enjoy a great interest rate while maintaining the flexibility to make deposits and withdrawals when you need to.
Wyth can also help with mortgage advice and solutions, whether you’re looking to refinance your current home or find a new one.
The content of this article is provided for general information purposes only and is not intended to be investment or legal advice. While this article provides tips for you to consider, it does not reflect the multitude of factors that can contribute to your individual situation. Seek counsel from your trusted professionals when making any investment, legal and financial decisions. While we strive to offer help, we accept no liability for any loss or damages arising out of your use or reliance of the information in this article, including liability towards third parties.