What Does a Divorce Mean For Your Finances?
No one wants to get to divorced, at least not at first. However, for many people, divorces are something that happens. Millions of Canadians get divorced each year.
If you do find yourself getting divorced, it’s obviously an emotional situation. However, it isn’t JUST an emotional situation. There are facts to consider as well, including what a divorce could mean for your financial situation.
When a relationship ends, you will divide the property that you share. This can include bank accounts, RRSPs, TFSAs, your home, your investments, your vehicles, and anything else that you own. While the particulars can certainly vary, in general, the asset stays with the person who bought it and you divide any assets that you bought during the marriage.
However, if one person helped pay for or care for an asset that was owned by the other partner, they may have a right to part of it. These are the situations that sometimes go to court.
You will want to divide your finances and assets quickly after a divorce because, in some provinces and territories, you could lose your right to a share of the assets if you do not make a claim after your separation or divorce.
You should also quickly decide what to do with any joint financial accounts that you have, such as bank accounts, lines of credit, investment accounts, etc.
If you do not close a joint account, then both partners legally have access to the money in the account.
If you decide to keep a joint account open (for example, if you keep your joint bank account open to pay your mortgage for a period of time) then you may wish to write up a formal agreement that spells out what bills will be paid from the account, what each person needs to contribute to the account, and how you manage the account.
Just as assets belong to the family, debts can belong to the family as well.
Who owns the debt is a common question that people have when they get divorced. The answer to this question can get somewhat complicated depending on your particular situation. However, in most cases, if you share a debt, you are equally responsible for the debt. Therefore, any loans that the two of you have taken out together (or co-signed for one another on) will be the responsibility of both people.
For example, joint credit card holders are equally responsible for the full balance amount owed to a creditor. This means that, even if one person in the relationship accumulated most of the debt on a joint credit card, both people will be responsible for the debt. However, if one person is a secondary cardholder on the primary cardholder’s account, the secondary cardholder may not be responsible for the debt.
Child Support Payments
Children require – and are entitled to – financial support from their parents. If their parents divorce, the parents can either agree to the amount of spousal support that each will provide, or leave it up to the courts to decide. The court will use federal and provincial laws to determine the amount of support provided.
Individuals who acted as parents (such as a step-parent, for example) can also be expected to pay child support payments following a divorce.
Spousal Support Payments
In addition to child support payments, spousal support is likely to be paid if there is a big difference between the incomes of the two people who are getting divorced. However, this is not guaranteed. The court may determine that the spouse with the lower income is not entitled to support if they own a lot of assets or if the difference in income cannot be traced to anything that happened during the relationship. The length of the marriage and the roles of each person during the marriage will also be considered.
Priority is given to child support when a person applies for both child support and spousal support.
Your Credit Rating
Your credit rating may be the last thing on your mind during a divorce, but it’s still very important. While your martial status is not a factor that is used to calculate your credit score, potential complications can arise in a divorce. For example, if one person accumulated a lot of debt on a joint account, this debt is the responsibility of both people in the relationship. This means that your credit rating will be hurt if the debt is not paid, even though you did not personally accumulate the debt.