5 ways to protect your finances during divorce
Saying goodbye to your marriage? Be prepared to say hello to stress. A dying marriage is emotionally taxing, time consuming and expensive. Nothing can threaten personal financial security quite like a divorce. But you can take steps to preserve both your bank balances and sanity before your soon-to-be ex leaves.
1. Get organized.
"Decisions made early in the separation process can make the difference between a divorce costing a few thousand dollars and taking a few months, versus a ‘War of the Roses' scenario requiring tens of thousands of dollars and many years to complete," says Ken Maynard, lead mediator for DivorcetheSmartWay.ca.
Set up checklists on a spreadsheet and list all your possessions and debts. Overlooked items can turn into expensive headaches if contested later on.
"Value everything -- assets and liabilities -- then decide who keeps what and who is responsible for what," says Laurel Wyton, a credit counsellor with Money Mentors in Edmonton. "Retirement funds, pension plans, children's education funds, life insurance cash values and inheritances will be part of the eventual negotiated settlement that you don't want carelessly or vindictively spent in the meantime."
Debbie Hartzman, certified divorce financial analyst and author of Divorce Is Not Easy, But It Can Be Fair, suggests keeping all financial statements from the time you officially separate until the divorce is final.
2. Deal with joint debt.
Review all your accounts and determine whether each is joint, co-signed, secured, individual, or individual with an authorized user.
To creditors, you and your spouse are equally responsible for joint debt, no matter who spends the money or who pays the bills. You are both 100 per cent responsible for the debt.
Until that joint debt is repaid, it is difficult to cancel the account (though it's possible to block further charges), Wyton says. She recommends getting written confirmation that no one is allowed to make additional charges, or removing your partner's name from the account if you feel he or she is untrustworthy.
Hartzman says all joint accounts should be frozen so equity and debt can be assessed. If one of you wants to keep a credit card or line of credit, she says, you must provide documentation to the credit provider proving that both parties agree to any changes.
3. Strive for a friendly split.
Separating parties who treat each other respectfully could mitigate at least some of the legal costs, as well as collaboratively plan how to pay outstanding debt efficiently.
According to a 2014 legal fees survey by Canada Lawyer magazine, the average legal cost of an uncontested divorce is $1,169. A contested divorce, however, costs an average of $10,406 (and can cost as much as $39,522), plus additional legal expenses when the case goes to court.
An established family lawyer charges $300 to $600 per hour, according to Darren Gringas, president of the Common Sense Divorce consulting service.
4. Build credit history if you don't have any.
If your credit relies exclusively on the other party, apply for a small amount of credit in your name as soon as possible.
"Post-divorce, people who lack an independent financial history may not qualify for credit at all," cautions Wyton.
5. Safeguard existing credit.
Already have a credit history? As early as possible, order copies of your credit files from both Equifax and TransUnion (since those reports present many of your financial responsibilities at a glance).
To help stay organized and protect your credit rating, draw up a written agreement with your spouse specifying who will take care of which bills until the separation is complete, says Hartzman. To prevent late or missing payments that damage both your credit profiles, Wyton suggests setting up automatic bill payments through an account that won't risk running out of funds (or is secured by overdraft protection).
You can also ask Equifax and TransUnion to place a note on your credit report stating that, going forward, you will not be responsible for any bills under your spouse's name, says Mike Morley, author of The Complete Guide to Credit and Credit Repair for Canadians.
To limit any temptation an ex might feel to run up debt Wyton recommends destroying loan or credit card applications that come in the mail.
6. Seek appropriate help.
An accredited money coach or a Certified Divorce Financial Analyst (CDFA) can simplify complicated issues, analyze your information and prepare reports illustrating the long- and-short term outcomes of financial decisions impacting a divorce.
Some CDFAs focus on financial planning services, such as budgeting, or asset and debt allocation in divorce settlement negotiations. Others are referred to as "divorce financial specialists" and work with separating couples before they visit lawyers, helping them to understand their options surrounding income, debt and future lifestyles, as well as developing separation settlement plans.
Hartzman emphasizes that a CFDA's role is completely different from that of a lawyer.
"It is the lawyer's work to help a client understand property rights, child and spousal support obligations and the laws pertaining to matrimonial assets and liabilities," she says. A CFDA, on the other hand, might help you determine whether it's better to stay in the matrimonial home and forgo any right to a pension or vice versa.
A CFDA can lower costs by serving as the single source to handle financial statements and disclosure in scenarios that would otherwise require going back and forth between the lawyers.
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