Financial Planning Tips After a Divorce
Updated: May 5
Marc André Castonguay, CFP, CIM
March 4, 2023
During this major life event, here are a few tips from a financial planning perspective.
Although the most recent data from Statistics Canada shows a decline in the number of divorces over the past few decades, marital breakdown is still a fairly common occurrence. The dissolution of a marriage or common-law relationship is not only emotionally difficult, but it also has a significant financial impact. During this major life event, here are a few tips from a financial planning perspective.
1. Hire a lawyer.
During this emotionally charged time, it is essential to have someone who will advise you of your rights and look after your best interest no matter how amicable the separation may be. Important decisions regarding separation of assets, monetary support, custody of the children will have to be made. Having someone in your corner to ensure the separation agreement is fair will help prevent making rash decisions you could eventually regret.
You should also review your will and power of attorney since it is most likely you will want to make changes to these documents. Your lawyer will guide you through this process to ensure your wishes are respected and you meet your obligations under the separation agreement.
2. Reevaluate your cash flow.
The immediate financial impact of a divorce for most people is moving from two income streams and shared expenses to a single income household. Take the time to analyze your spending, separate the critical needs from the discretionary spending (“need-to-have” vs “nice-to-have” expenses) and make the necessary adjustments to avoid digging yourself in a debt hole and jeopardizing future plans. Indeed, this may require some difficult decisions such as downsizing your home to lower home maintenance expenses and travelling less, but the sooner you adjust your spending to your new reality, the better off your will be.
3. Review your beneficiary designations.
In addition to updating your will, you should review your beneficiary designations on your life insurance policies and registered accounts such as RRSPs, TFSAs and pension plans. While the initial reaction may be to remove your ex-spouse from all beneficiary designations, check with your lawyer first to ensure none of these assets are linked to the settlements made in the separation agreement.
4. Update your financial plan.
Just like a GPS recalculates if you change course, adjustments to your financial plan will be required to chart a new path to achieving your goals. Remember, your plan is your personal roadmap to get you from your starting point (current situation) to your destination (various goals such as retirement, major purchases, child’s education, etc.). Following a divorce or separation, your current financial situation will be significantly different, from the amount of assets and debts you have, to your cash flow and risk tolerance. This alone requires updating your plan since your starting point has changed. Additionally, your future goals, whether for the short or long term, could be significantly different as well. An updated financial plan that will take into consideration your new reality will provide you with a new roadmap to ensure you are on the right path to reaching your goals.
Life is full of surprises, some more difficult than others. While divorce or separation is certainly a life changer, the challenges it poses are not insurmountable. By surrounding yourself with the experts that can guide you through this change, you can undertake this new chapter in your life with confidence.
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This writing is for general information purposes only and is not intended to provide legal, accounting, tax or personalized financial advice. If you are not sure how to proceed with a request for further information, seek help from a professional. Any opinions expressed are my own and may not necessarily reflect those of Louisbourg Investments.