How to manage your money through a divorce

Divorce is tough emotionally and financially. Here’s how to handle your finances during a divorce to help minimize financial disruptions.

Divorce...is unpleasant. It’s stressful, and it disrupts everything in your world. Your finances, your day-to-day life, time with your children, even your housing… it could all be upended with a divorce.

In Canada, the divorce rate is 40%, and even though it’s fairly common, it can be tough to find resources on money management in divorce. Yet the more you know about things like separating finances before divorce and how to handle finances during a divorce, the better equipped you’ll be to help minimize the financial fallout.

The first step to take before you even start thinking about finances during a divorce is to get a lawyer you trust as part of your divorce preparation.

A good lawyer will help you understand your rights and obligations and advise on money management in divorce, and even help you avoid making costly financial mistakes. This is particularly important if there are children in the marriage, matrimonial property to divide, and/or a large difference in the income and assets of spouses.

While you can always look for a local family lawyer through your area Law Society, you could begin by asking family, friends, or co-workers for a recommendation. Try to speak to multiple lawyers to find one you trust.

Lawyers can be expensive. However, it’s important to remember that the most expensive advice might not always be the best.

Spending, saving, and money matters are some of the key stressors in all marriages, so it’s no wonder that finances can cause major emotional upset during a divorce.

To protect your financial future, track all of your current expenses carefully. Don’t overspend, and avoid making large, unnecessary purchases – especially on joint credit accounts – as this could be seen as bad behaviour should your divorce end up in court.

Do you own a home together? If so, you’ll need to make a decision about whether to sell the home. If you do sell, you will need to come to an agreement about splitting the home sale proceeds.

If one of you decides to stay in the home, you’ll need to update your joint mortgage to remove one account holder. The spouse who remains in the home will need to complete a new mortgage application and requalify to carry the mortgage on their own, and may have to pay the other person for their portion of the home’s equity.

Expect to pay legal fees for the preparation of a new mortgage and to process the title changes required to remove one spouse from the title/property deed documents.

Your lawyer can create your separation/divorce agreement, but the more details you can provide, the easier it will be for them to write up the agreement.

Since many divorce lawyers charge hourly, you can save money by knowing your current and forecasted income and expenses. This will cut down on the communication back and forth between the lawyer, their assistants, and ultimately, can help minimize your legal fees.

Updating your will, insurance, and financial beneficiaries is an often overlooked yet important part of money management during a divorce. 

You’ll need to contact your lawyer to change your will, and your insurance company to update your life insurance beneficiaries. Depending on the particulars of your divorce agreement, one spouse may be required to name the other as the beneficiary on a life insurance policy or for health benefits.

If you have any registered investment accounts or pensions with named beneficiaries (ie. TFSAs, RRSPs, RRIFs, LIRAs) reach out to your advisor to update as needed.

Divorce can be a difficult and stressful process. However, knowing the steps to follow to manage your money before and during this time can help you to prepare your finances, and set the best possible financial foundation for your new life.