Suddenly single

Ensure your financial independence

Going through a marital separation or divorce is fraught with emotions and questions. It may have taken years to get to this point and then quite abruptly, here you are, single. So many emotions have overwhelmed the situation: how are the kids coping with the news? Are your parents and family supportive? Where will you live? Will you have enough? The list goes on.

Fear about your financial future can be a major issue facing both high net worth individuals and the average Canadian. While you are suddenly single, it doesn’t mean you have to go through the process alone. Your network of experts, including your Investment Advisor, can help you minimize the uncertainty of this time by taking control of the understanding you have of the finances. Building a team around you who can provide guidance will help you work towards a good outcome from the process and eventual settlement.

Financial independence is driven in large part by earned income and lifestyle expenses. Is there enough money coming in to provide for the lifestyle you are used to? Perhaps child support or spousal support payments will form part of that equation or are still under negotiation at this point (for the payor and payee). While many individuals may have kept their personal finances separate from a spouse throughout the relationship, many have relied on jointly-owned bank accounts, credit cards, loans and mortgages for cash flow over the years.

Now is the time to ensure that your financial situation is in your control. Your new financial independence can be a way to gain better insight into your current financial picture and understand your needs to help you establish and achieve new goals. As you work towards the bigger picture, taking some practical steps as early in the process as possible will hopefully give you peace of mind while you cope with the emotional whirlwind.

To get started with understanding your current financial situation, here are some areas that should be addressed as soon as possible:

Credit cards

If you do not already have one, open a credit card in your own name. In marital situations, it is common to have one main credit card holder and a second authorized user on the credit account. Therefore, your credit card may not really be yours alone! Start fresh with a new credit account in your name alone to ensure control of future expenses and to establish your own credit history.

Credit history

Ask your personal banker about your personal credit history. Too often, an individual’s credit history is marred by a spouse’s poor financial habits. This can occur as a result of joint debt or mortgages. Obtain your personal credit history report to be informed of any red flags and work with your banker to find ways to improve your rating over time.

Automatic bill payments

Take stock of which bills were being paid automatically out of your bank accounts and who will be responsible for those payments while separation terms are being negotiated. Discontinue automatic payments if there is agreement that you are not responsible for them.

Bank accounts

Make sure you have a personal chequing account in your own name to establish your financial identity for the purpose of future mortgages or other banking requirements. Until the separation agreement is finalized you must keep status quo with current banking arrangements. Pay cheques should continue to be deposited to the account that was used prior to the separation and bill payment arrangement should continue in the manner that was previously arranged.

Set aside an emergency fund

Financial negotiations during a separation can take a long time. Set aside some emergency funds or start saving monthly in an account in your personal name. This will give you a safety net and a cushion in the event of an unexpected expense.

Create a new will

It is important to meet with an estate planning lawyer to review and update your will. If you have an existing will, the provisions of the will may be interpreted differently after a separation. In some provinces, after a legal separation, the will may be read as if the ex-spouse had pre-deceased. As such, appointment of executors, and new provisions on who will benefit from your estate, need to be done in an updated will. As unlikely as it may seem, the risk of premature death without a valid or up-to-date will can be devastating for the loved ones you’d leave behind.

Review beneficiary designations

This may be the last thing on your mind; however, in the event of your premature death do you still want your RRSPs to be paid to your ex-spouse? Property held in registered plans, pensions, segregated funds and the proceeds of life insurance can transfer, at plan holder’s death, by way of a designation of beneficiary. We often designate a spouse, but once the formal separation agreement is in place, you may be able to change this to another individual, your children (as long as they are not minors), or to your estate depending on your estate planning goals. You should seek legal advice on who to designate as beneficiaries.

Review appointments of trustees and corporate directors

If you have a family trust or private corporations and your spouse is a trustee of the trust, or a director or officer of the corporation, seek legal advice on removing your spouse from those positions. If your spouse is also shareholder of the corporation or a beneficiary of a family trust, their entitlements will need to be reviewed as part of the settlement process.

Review which assets are held jointly with right of survivorship

Some assets such as bank and investment accounts and real estate, may be held jointly with right of survivorship with your spouse. This means that if you die first your ex spouse will automatically own the entire asset and this asset will not be dealt with as part of your estate through your will. You need to seek legal advice on whether legal title needs to be changed to a tenancy-in-common in the interim until a settlement is reached.

Create a financial plan

Working with a knowledgeable Investment Advisor is the best way to chart your path for the future. Now that you are single, understanding your lifestyle expenses, cash flow, ownership of assets and debt obligations will give you the control and insight to succeed in this next phase of life.

Next steps

These small steps could go a long way to giving you financial independence, control, and a plan for your future. At Richardson Wealth we can help by providing financial planning services for your needs. Contact your Advisor to get a copy of our comprehensive Divorce Checklist and to discuss how we can help you.

How to spot “invisible” cash flow

It is important to identify “invisible” cash flows while in the separation negotiation process in order determine fair equalization. Here are some scenarios to consider.