No one enters a relationship anticipating its end, but when that reality occurs, it brings unique challenges to financial planning. This situation necessitates careful consideration of assets, liabilities, and long-term goals. Sometimes, the financial plan needs minor adjustments; other times, a complete overhaul is necessary. It all depends on where you are and your goals.
Who gets what, for the most part, is determined by you, your ex, and, if necessary, the legal system. That said, here are some general guidelines for adjusting your financial plan during a separation and/or divorce.
Seek Professional Guidance
There are a few professionals you should consult regarding a separation or divorce. First is a mediator/lawyer. They will help you write up a separation agreement, define which assets are considered marital property, advise on your rights and responsibilities, and help protect your interests during any divorce proceedings. Second is your financial advisor. Let them know as soon as you’ve decided to separate. They will help develop a tailored strategy suited to your new economic needs and goals. They can also advise you when you need to hire an accountant regarding the tax implications related to the division of assets and filing taxes as a single person.
Begin Uncoupling Accounts
You’ll want a clear snapshot of your finances before the separation. Be sure to get statements for all accounts (including banking, investment, loans, etc.). Have the statements dated for the day of separation for both your and your lawyer’s records.
Start establishing your independent finances. Close joint bank accounts and open new separate accounts in your own name. Next, take care of your debts. Check your credit rating. Close joint debts, lines of credit and credit cards, and establish your own credit if needed. Lastly, update your online authorizations, passwords and contact information for all your online accounts, including bank, investment, social media, app, retail/store and customer reward accounts.
Update Your Financial Plan
To create a new individual financial plan, first evaluate the situation you had with your partner. What was your cashflow? What was your net worth?
Once you understand where you stood with your ex, it’s time to examine the changes that will occur to your cashflow and net worth now that you are separating. Ask yourself, what are my goals now? Collaborate with your financial advisor to explore options and strategies that align with these new goals. Your advisor can also outline how various settlement options will influence your plan.
Update Your Estate
You’ll need to update your will, power of attorney, and other estate planning documents to reflect your new circumstances. You’ll also want to change your beneficiaries on any life insurance policies and registered accounts such as RRSPs, TFSAs, etc.
For financial strategies and tools that will help you meet your goals, contact KLT Wealth Management.
