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Surviving a Divorce Financially

I think almost everyone who gets married hopes to stay with their spouse for the rest of their life. However, for a significant number of people, reality does not follow that script. A study indicates that 4 in 10 first marriages end in divorce in Canada. The Institute of Marriage and Family Canada provides more statistics on the topic.

With the reality of the modern world showing that there is a good chance that one’s marriage could end in divorce, it would be prudent to cushion the financial blow to some extent; the emotional aspect of the split is too complex and beyond the scope of this PF article. Also, getting a prenuptial agreement would minimize financial damage to a great extent; but, this article is targeted toward people that do not have one in place.

Lawyers will probably aid in getting a divorce but the court process is not very forgiving emotionally (finger-pointing) and financially (legal fees). Divorce cases turn ugly because the soon-to-be split couple are not very philanthropic toward their spouse. With combined finances and emotional involvement, the battle may include highlighting how one spouse gave up their career prospects for another, how their home management skills are worth the time in gold, etc.

Documentation is Key

Once it has become clear that divorce is the way forward, it is important that one finds the time and motivation to organize certain things to make the process easier and less painful. A friend/relative or two at this critical juncture will be essential. Some steps that could be useful include:

  1. Do not be shy or ashamed to seek help – be it from a friend/relative, fellow employee or therapist.
  2. Prepare a text document with specific incidents such as abuse that could help your cause.
  3. Create a budget spreadsheet. Hopefully, there was an expense tracker in place for life as a couple. If not, take the time to generate one. This will be critical to know the requirements when transitioning to the single life.
  4. If working, check to see if your monthly income can meet your individual expenses.
  5. If getting custody of children, if any, seek child support to assist the transition.
  6. Depending on whether the home is going to one spouse or be sold and the cash split, you may need to rent for a short time at the least. Check your credit file and ensure that it has not been tarnished through your joint finance history.
  7. If there are investments, then consider splitting them as transfers rather than liquidating them to avoid taxes.
  8. Cancel joint accounts and/or credit cards, if any, to avoid the spouse from cleaning out the accounts or maxing out the cards.
  9. Review insurance policies and accounts that have a named beneficiary and make changes as deemed fit.
  10. Face reality that, for most people, lifestyle will take a hit after the divorce, whether they are the primary earner (through alimony) or not (need to get into the workforce or look for a second/better-paying job). The economy of scale that marriage provided will be lost but depending on the situation (with or without children), consider the possibility of shared accommodation (roommate).
  11. If possible, exit the relationship in an amicable manner by choosing forgiveness to reduce the damage on several fronts.

Life Does Go On

Sometimes, it is better to cut your losses, be it investments or life, and make a fresh start. So, the divorce may be the starting point for a great future – relationships, finances, etc. In any case, having low debt, if not zero, is a great buttress.

It may be worthwhile to look at the divorce as an opportunity to change habits – eating, spending, exercising, etc. Seek out new friendships and learn from your past relationship. There may be mistakes from your marriage, which could be turned to stepping stones for a successful relationship and marriage second time around.

As mentioned earlier, this is a complex subject and a single post is not going to be a one-stop shop for the topic. The article is only meant to touch upon some implications of a divorce and provide some pointers in the event of having to go through one. There are various resources available to assist people in that situation.

Are there any other issues that a soon-to-be divorced person would need to be aware of?

About the Author: Clark works in Saskatchewan and has been working to build his (DIY) investment portfolio, structured for an early retirement. He loves reading (and using the lessons learned) about personal finance, technology and minimalism.  You can read his other articles here.

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About the author: Clark works in Saskatchewan and has been working to build his (DIY) investment portfolio, structured for an early retirement. He loves reading (and using the lessons learned) about personal finance, technology and minimalism. You can read his other articles here.

{ 4 comments… add one }
  • Nicolas October 20, 2011, 12:22 am

    For one, although divorce itself is under federal jurisdiction, how the spouses’ assets are split falls under provincial jurisdiction. Newlyweds should get acquainted immediately with the rules for splitting assets in their provinces as those are not all the same. Also, you’d better make an inventory of what each spouse is bringing in the marriage. This will make the (eventual, let’s hope not) split simpler and cheaper.

    Sadly, people don’t do those things when all is fine, thus the legal fees for disputed assets. A bit like PF, you should save for rainy days when things are good become it’s too late when things are bad.

  • Cherleen @ My Personal Finance Journey October 20, 2011, 10:58 am

    Going through a divorce is a painful experience, not only for the couple but also to their children, if there is any involved. I cannot imagine the emotional turmoil one has to endure, and then face the financial challenges afterwards.

  • ITS October 20, 2011, 6:06 pm

    Chosing the right mate for life, could be the best or the the worst financial decision of your life…

    /been the best so far for me…

  • Henry October 20, 2011, 8:13 pm

    Parents should pass their assets through testamentary trusts and name their children as the beneficiaries of the trusts. The spouse in the divorce cannot make claims to the assets in the testamentary trusts. Also, there may be tax benefits by using testamentary trusts. The only downside to testamentary trusts is additional administration and legal fees. Overall, testamentary trust is a good way to protect inheritances from creditors, lawsuits, and divorces.

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