5 Questions Women Should ask as they go Through Divorce
By Elke Rubach, LL.B LL.M CFP CLU, Principal, Rubach Wealth and Anna-Marie Musson, Managing Partner, Musson Morneau LLP
When one door closes, another one opens. Or so the saying goes.
If you’re a woman going through a divorce, this maxim may also be a reminder that, as you close the door on your marriage, you’re blasting open a portal into a whole new realm of unknowns and uncertainties.
You’ll be asking yourself a lot of questions. How will I be able to afford this house, or my next home? Will I be able to take care of my kids financially and afford the lifestyle I want on half of the income our family once had? How will all of this affect my retirement?
When I listen to my clients asking these questions, I hear the fear and anxiety within them. When I probe more deeply, I also start to get a better understanding of how they’re likely to make decisions about their finances after divorce.
Understandably, the intense emotions surrounding this major event in your life can get in the way of making the best choices to set yourself up for a better future, and the unknowns can be terrifying. This is why it’s important to get informed and work with a professional to plan for successfully navigating your finances throughout and after divorce.
What does the law say?
As a first step, make sure you understand the legal landscape before making any financial decisions during divorce. A basic tenet in divorce laws in Canada is for each person to leave the marriage with equal assets. In practice, this means if there’s a large discrepancy between the two parties’ net worth statements at the time of separation, the person with the higher net worth pays the other an amount that, essentially, equalizes their assets.
Some people choose to negotiate the terms of their divorce in a way that allows them to divide their assets any way they want so long as there is a full disclosure of net worth values, and that both parties are making informed and voluntary decisions. However you decide to settle the financial terms of your divorce, and whether you’re getting or giving assets, it’s critical that you have a plan for moving onward and upwards from that point on.
What is each party’s net worth?
Assets minus liabilities equals your net worth. It sounds simple – and it can be – depending on what you have and what you owe. The first step to calculating it is to take stock of all assets in your name – including RRSPs and pensions – as well as those in joint accounts. Document how much is in each account along with the rates of return. You’ll also need to get clarity on your debt. How much do you owe? What is the interest rate? What is your repayment plan?
Once you have a clear view of your net worth, it’s time to review your spouse’s net worth statement. If you’re not sure they are providing you with full transparency or if there are items in the net worth statement you don’t understand, consult with a professional such as your financial planner, accountant or lawyer.
Looking forward: What’s my post-divorce budget?
For many women, money is tighter after divorce – even if they’re bringing in a good income. One reason for this is that women usually end up being the primary custodian for the children, which often means they become responsible for most of the kids’ day-to-day expenses.
To map out a realistic post-divorce budget, analyze at least the last two years of expenses to understand your spending patterns. Crunching the numbers will make not only make it easier to set a budget for your new life, but it can also help you ensure you negotiate financial terms that make sense going forward for you and your children.
Should I stay in my home or sell?
One of the hardest things to let go of in a divorce is the home where you and your kids have built a life and community, but sometimes letting go is the best thing to do. Many financial advisors have seen women so emotionally attached to their homes that they become house poor and can no longer afford to maintain it. In the end, their decision to buy out their spouse in this regard causes them even more stress and hardship.
Before making a decision on the family home, figure out how keeping the house fits into your budget and your overall financial plan. Seeing the numbers can help take the emotion out of your decision.
So what’s the plan going forward?
This is it: a new chapter in your life. Step into it with greater confidence by laying down a plan for your day-to-day finances and for the future. It’s a good idea to sit down with a financial advisor to work out a monthly budget, a debt repayment plan, an investment strategy and a retirement plan. Now that you’re flying solo, it’s more important than ever to make sure you have a plan for how you’ll pay for the kids’ education, and how they’ll be provided for should something happen to you or your former spouse.
There’s a lot to do, and this time you’re doing it mostly on your own, but with the right information and the right professionals to help you build a solid plan, it becomes easier to walk through that newly opened door.
Disclaimer: This article applies only to married women getting divorced. If you are in a common law relationship, there are different legal principles that apply. We encourage you to speak to a lawyer about your particular case.
Elke Rubach, LL.B LL.M CFP CLU, Principal, Rubach Wealth is intimately aware that in life, everyone has their own set of issues – and they’re not all related to finances. That’s why clients celebrate her for not trying to sell them a product, but for living her mission statement: We listen, empathize and provide thoughtful counsel on holistic solutions in every area of our clients’ lives.
Anna-Marie Musson, Managing Partner, Musson Morneau LLP started her career in law in 2002 and brings over 20 years of experience with her. She started through litigating at a prominent national Bay Street law firm and moved up to senior partner. After spending years litigating cases in court, Anna-Marie identified that this process was dated, expensive, and unnecessary – there’s no need for many family cases to go to court. It was this realization that led Anna-Marie to create a different kind of Firm , leveraging her wealth of knowledge and experience in solving issues without involving the court.