Monday, November 11, 2013

Financial recovery from divorce

Divorce happens – approximately one in three marriages now ends that way – and without the right kind of planning, the financial fallout can be devastating. There are always legal issues involved in any divorce proceeding – everything from the right to division of family property and pension benefits to spousal and child support requirements – so contacting a lawyer is an absolute necessity. But there are certain financial recovery steps that need to be taken in almost any divorce.

Financial issues
  • Close joint accounts and open individual accounts
  • Cancel joint credit cards and any automatic payments made in favour of the former spouse
  • Develop a new, individual financial plan – including a personal budget and retirement plan
  • Transfer/assume joint assets – such as responsibility for mortgage payments and entitlements from RRSPs and non-registered accounts
Family law issues
  • With your lawyer, establish your right to a division of family property, pension benefits, spousal support and child support
  • Obtain a release from your ex-spouse’s financial liabilities
  • Decide who will continue paying for RESPs
Tax issues
  • Notify government agencies (CRA and RRQ in Qu├ębec) about your change in marital status for the Canada Child Tax Credit and other credits/child support calculations
  • Remove the ‘spousal’ designation on any spousal RRSPs/RRIFs
  • Assess the tax liabilities when negotiating the division of property – such as the principal residence exemption – as a means of reducing the resulting tax burden
  • Investigate the tax credits/deduction that may be available for spousal support, child support/child care expenses and other fees/expenses/payments
Insurance issues
  • Review your life, medical, disability, critical illness, long-term care, mortgage and other insurance coverage (including house, car and liability) and make any changes as required
Estate planning issues
  • Change beneficiaries for registered accounts, life insurance policies and any registered pension plans
  • Review your will, living will, health care directives and Powers of Attorney
Divorce is always difficult and expert advice is an essential requirement at this emotionally trying time. Your professional advisor can be the ‘team manager’ you need to keep your financial recovery on the right track.