Financial Literacy for Separating couples

Angela Princewill

November 29, 2021
Separating couples

I’m not sure if you knew this or not, but November is Financial Literacy Month and this year, the focus was on the “importance of building financial resilience in challenging times and a digital economy”. How appropriate, given we are still in the process of navigating our way out of this COVID-19 pandemic 

This got me thinking about how much financial resilience our clients need when dealing with their separation or divorce. I always tell my clients that two can live cheaper than one so except for the more affluent, their finances are going to get a little tight. 

They may not be able to afford the same size of home the family is used to or even be able to live in the same neighbour. This raises concerns for many parents as they would like to maintain the children in the same neighbourhood with their friends and support systems.

Non-parents and empty nesters are not immune to challenges. For those who are nearing retirement, the limited income available for retirement may become even more limited if the income is split. For those who do not get to share in the pension, there is the loss of the income they expected to have available to them at retirement. 

Add to these, the fact that usually, one person is the one who takes care of the finances you can see that the importance of financial literacy cannot be overemphasized

If you’re going through a separation or divorce, it is important to take control of your finances. Creating and sticking to a budget is essential. Understanding where and how you spend is important especially if you were not the one who managed the family’s finances. You can no longer afford to be casual about your spending habits.

Be careful how much debt you take on. I recognize many people leave a relationship taking on more debt. Sometimes to buy out the other party’s interest in an asset. That may be the financially smart thing for you to do but going forward, you need to be mindful of how much consumer debt you take on. It’s tempting to take on more debt to be able to maintain the same standard of living for yourself and the children but that is never a good idea.

Talk to a financial advisor to get a better understanding of how you can meet your financial goals in the future including your children’s education and your retirement. Review your investments as with a separation, your financial priorities may have changed, and it is important that your savings and investment reflect this.

In short, get the help and information you need otherwise, you could become overwhelmed with mounting expenses, debt, and a feeling of loss of control.

In addition, make sure you pursue what you are entitled to under the law. You should keep the following in mind:

Child and spousal support

Child support is the right of the child. Payors have a responsivity to pay, recipients have an obligation to be diligent in pursuing it. Child poverty continues to grow, and every dollar not paid toward child support is a dollar that can be applied to better the standard of living of the child.

If you are the lower income earner or stay-at-home partner, it is important that you seek independent legal advice about your entitlement to spousal support. Even higher-income earners need to seek independent legal advice to ensure that they are not overpaying.

Often, without the benefit of legal advice, parties come to agreements that involve either one person paying too much, or the other receiving way less than they are entitled to. There is no problem with this scenario if it is an informed decision however, if one party is struggling and they do not understand the extent of their obligation or right, we can all agree that is not an ideal situation.

Equalization 

If you were married, on a breakdown of the relationship, you are entitled to an equalization of your net family properties. There are some common misconceptions that I would like to debunk:  

 1. I brought the matrimonial home into the marriage, so I get to deduct the value on the date of marriage. Unless there is a marriage contract that allows you to do this, then no, you share the full value of the property on the date of separation.

2. I earned most of the income in our joint account, so the balance is mine. Money or any asset that is joint names is presumed to belong to both parties. This presumption can be rebutted of course, but it is no easy feat especially in this context.

3. I used part of my inheritance to renovate the matrimonial home. I want credit for it. Once invested in the matrimonial home, that money cannot be excluded. Except there is a domestic contract stating otherwise
4. The home is only in her name so it’s hers.

No, every property gets to be divided regardless of who holds title to the property.

Division of Property for common-law spouses

Often, a person leaving a common-law relationship may think that because they were not married and because the asset is not in their name, they are not entitled to a share of the assets accumulated during the relationship. That may not be the case. The role you played in the relationship, your intentions, and your contributions (tangible or intangible) in the acquisition, maintenance, or preservation of a property, may entitle you to a share of the property. You need to talk to a lawyer

Limitation Period 

It is important to remember that you have two years from the date of divorce or six years from the date of separation to make your claim for an equalization of net family properties. The fact that you were negotiating with the other party may not be sufficient to extend these limitation periods so be mindful.

Those are my few words of wisdom this financial literacy month. Of course, I could keep going but I’ll take the advice of Seneca – Less is more. For more information on equalization & division of property for common-law spouses, child and spousal support, and everything related to your family law matter, check out our blogs, podcasts and YouTube channel. We are available for family law services in Toronto, Pickering, Markham and Scarborough.