Going through a divorce is never easy, but there are steps you can take to ensure you’re on the right path towards financial security and managing your money and assets going forward.
The following considerations can help you better navigate your divorce from a financial perspective.
1. Don’t be afraid to take the steering wheel with your finances
If you took a backseat to financial planning in your marriage, now is the time to move to the driver’s seat—your future is at stake. Here are some tips to consider:
- Get a clear picture of your current financial situation. Do an inventory of all your financial assets and liabilities. Knowledge of your current assets and liabilities allows you to monitor the growth of your net worth with the purpose of increasing your assets and decreasing your liabilities over time.
- Make sure you’re setting a monthly budget, and develop some basic financial management skills.
- If you have debt, ensure you pay off the debt with the highest interest rate first. If possible, debt should be consolidated to lower your total interest payable.
- Know your credit score, and review your credit report. Credit reports can be obtained from credit bureaus such as Equifax or Transunion. Ensure the information is current and up to date with your post-divorce situation.
- Understand your housing options. You may find that you need to downsize from a house to a condominium or townhouse or move to a different neighbourhood to help ends meet. Do you want to rent or buy a home? Get a clear idea of the costs associated with your options. You may wish to consider borrowing from your RRSP through the Home Buyers’ Plan to help with the purchase of your home.
- Start a conversation with a financial advisor - the right advisor should make you feel comfortable and guide you along the way.
2. Adapt your expectations to be realistic
As your divorce is finalized, spend some time setting realistic expectations about your standard of living. Most people find that moving from a two-income household to a single-income household requires an adjustment to your day-to-day lifestyle.
3. Update your beneficiaries and estate documents
Following a divorce or separation, it is critical that your estate plan and corresponding documents be reviewed and updated. It is recommended that you:
- Review and update beneficiary designations on your investment accounts. Ensure the beneficiaries of your RRSP, RRIF, TFSA and employer pension plan are updated accordingly.
- Review and update the beneficiaries and ownership of insurance policies. This should include any personally held policies as well as any insurance you may have through your employer.
- Ensure you have a valid will, personal directive and power of attorney and that these documents are updated to reflect your current post-divorce situation. Review and update not only the beneficiary designations, but you may also have to elect a new executor and ensure you have made arrangements for your dependents. You may also need to update the attorney in your power of attorney and the agent you have elected in your personal directive. If you don’t have an estate plan in place, now is the time to do so.
Even if you are not making any changes, it is important that the documents and beneficiary designations be revisited and current dated after your divorce so there is no doubt regarding your intentions.
4. Leverage a fresh start to teach your kids about money
Divorce brings about a number of pivotal changes, including the chance to start new habits with your kids.
Depending on your kids’ ages, you can involve them in some of the household financial decision-making. This could include things like setting up an allowance for them in exchange for helping with household chores or helping them to understand the length of time it will take to save for items they want. Whether it’s your ten year old saving for a video game, or a teenager saving for a car, not only are they learning life skills, they will also feel a sense of accomplishment when they have saved enough and are able to make that purchase.
Consider setting aside dollars for your children’s education in a Registered Education Savings Plan (RESP). Also ensure your children are aware of the costs involved in post-secondary education. Even if you have saved for their education, as your children get older they should be aware of the anticipated costs and their expected contribution.
5. Build a new financial plan for your new life post-divorce
After your divorce, you’ll start to build a good understanding of your monthly income, child support to be paid or received, your monthly expenses and your new ambitions.
This is a perfect opportunity to build a new financial plan. Your plan will give you the confidence that you’re able to manage your day-to-day lifestyle, as well as plan for retirement. While it might be hard to think about what your new future will look like right now, a financial advisor can help you navigate your options.
It’s never too late to start over again. As difficult as these major life changes are, there is hope. So no matter where you are on your journey, we’re here to help with straightforward advice.
Conversations are always kept in strict confidence regardless of what is happening in your life, so never hesitate to reach out for help.
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