Did you know that 41% of first marriages in Canada end in divorce?
While many couples divorce for a variety of legitimate and understandable reasons, the procedure is not simply a straightforward dismantling of a wedding certificate.
There are many financial considerations when filing for divorce, and the more prepared you are for that portion of the proceedings, the less you will have to worry about when the divorce is finalized.
Here are some financial aspects you should pay close attention to while proceeding with a divorce:
Marital Assets
When it comes to divorce, financial assets such as cash, bank accounts, stocks, mutual funds and savings bonds must be considered carefully.
Especially because not all assets created equal. It’s impossible to simply split everything down the middle.
Rushing into a settlement without careful consideration can be a financially and emotionally difficult situation to deal with after the divorce is finalized.
Real estate also needs to be addressed when filing for a divorce. This includes your marital house as well as other houses and properties, vacation properties, timeshares, rental properties and business properties.
Because a home is as much a financial investment as an emotional one, it can be difficult to negotiate how the property will be split, whether it is sold or one spouse buys out the other in order to keep the house.
Debt
Even if one spouse agrees to assume responsibility for debts such as mortgage, this does not mean the other spouse has no financial obligation to the joint debt.
Ultimately, both names on the debt, loan or mortgage are held accountable for paying it. Therefore, if the spouse that keeps the home defaults on mortgage payments, both parties suffer the resulting consequences.
A divorce decree cannot terminate financial obligations to creditors.
The only way to protect yourself if your spouse is assuming responsibility for a debt is to contact the lender and determine if he or she can refinance the loan under his or her name.
Otherwise, you have to place trust that he or she will keep up with the payments.
Bank Accounts
Most married couples establish a joint bank account in which all incomes are combined and all expenses are paid from it.
If your income is automatically deposited into a joint account, you will want to have it switched to a personal account in your name only.
Be sure to also take your name off the joint accounts to avoid liability if the account becomes overdrawn.
Although most divorces are amicable, should you suspect that your spouse is going to clear out the account, take your entitled half and put it in a separate account.
Taxes
There are a number of refundable and non-refundable tax credits that are based on the size of your “family net income”. When you’re married, this means the income of both spouses.
Therefore, when you divorce, your family net income is based on only one income. This means that you may become eligible for an increase in tax credits.
For this reason, it’s crucial that you update the CRA (Canada Revenue Agency) immediately after the divorce is finalized so that the recalculations can be done as soon as possible.
If you are separating in lieu of divorcing, you will have to live apart for at least 90 days before you notify the government.
Get the Help You Need
While you may be tempted to navigate the waters of divorce on your own, it is recommended that you seek guidance from a tax professional or accountant.
Our expert and experienced accountants at Liu & Associates can provide you with professional advice when it comes to sorting out your finances during a divorce.
If you are preparing for divorce proceedings, or simply have questions about your finances, don’t hesitate to contact us today!