The statistics speak for themselves: every second marriage ends in divorce. If you too are one of those people whose marriage has sadly ended, you know that you also have some challenges when it comes to personal finances.
Not only do you have to move and rearrange after a breakup, but you also have to bear all the expenses yourself instead of having to share them with your spouse. In this time of inflation and rising interest rates, the step up is high. Added to this is the questioning of financial planning due to the division of family assets and reduced pension provision.
How do you find your way around and not forget anything? Daniel Harissa, financial security advisor and vice president of financial management at Waltr, recommends reviewing the following seven areas. “Some will be more important than others depending on where you are in life,” he says.
1. Investments
Work out with your financial planner what will be left of your investments after splitting them up, as you will likely need to review your investment strategy. If you have a defined contribution pension plan or a separate fund, you should consider changing the beneficiary if the beneficiary was your spouse.
2. Insurance
Again, adjust the beneficiaries of your insurance and make sure it continues to meet your needs. If your lifestyle has changed since you were single, revise your insurance coverage.
3. Finance and Debt
In order to set up a new budget, it is imperative to recalculate your living expenses. After completing this exercise, assess your level of risk in relation to unforeseen events. Build an emergency fund that will cover three to six months of your living expenses as soon as possible. “This allows you to cope with unexpected expenses without having to use your credit,” emphasizes Daniel Harissa.
In addition, your debt could increase after a divorce since you will likely have to move and buy furniture and appliances. “In terms of housing, if you’re looking to buy a property or buy your ex-spouse’s share of the family home, assess your borrowing ability with a mortgage broker or your financial institution based on your personal resources,” Daniel Harissa points out.
Also make arrangements if your ex-spouse has been assigned joint debts or an additional credit card.
4. Estate Planning
Check your will and change your choice of heir. If you were to die, this would result in your ex-spouse potentially being unable to benefit from your assets to the detriment of your new de facto spouse.
5. Legal Aspects
As with a will, check your mandate if you have appointed your ex-spouse to be your trustee.
Also, make sure you notarize any special arrangements you have with him, such as division of assets, residence, property, etc. This will avoid arguments and legal problems in case one of you changes your mind.
6. Retirement
Review your retirement plan with your financial planner because your Marital Savings (RRSP) will no doubt have decreased. “Once the projections have been updated, set new goals and an investment strategy to achieve them,” advises Daniel Harissa. You may have to make difficult decisions and reduce your expenses because when you are alone it will probably be more difficult to reach the savings level you want.
7. Taxation
Consult a tax advisor to ensure that the divorce and the associated transfer of assets are as tax-free as possible.
Advice
When you and your ex-spouse complete an RESP for your child, you need to decide what you want to do going forward. They could continue to contribute to the same RESP, withdraw the funds, close it, or even open a second one with a single subscriber. This often depends on the relationship you have with your ex-spouse.
The age at which you divorce has a major impact on your retirement planning. For example, if you separate at age 60, you will have more accumulated assets to share. Also, you’re nearing the end of your working life, so you have less time to accumulate money for your retirement.