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Financial strategies for women preparing to divorce

Consider these 7 top money matters to navigate a divorce and avoid unwanted surprises

How do you dismantle a shared financial life and build a new one, solo? It’s a question more Canadians are facing as they make the difficult and emotionally charged decision to divorce. Getting your finances right is critical. This is especially true for women, who can be hit harder financially by divorce than men.

A quick look at divorce in Canada

The latest statistics show that 41% of all marriages in Canada end in divorce. This increases to 60% for second marriages and 73% for third marriages. Today, 10.7 million women in Canada are separated or divorced.

These numbers have steadily increased since the 1970s for a few key reasons, according to research from The Vanier Institute of the Family. Legal changes have made it easier to divorce, decreasing religious influence, and women’s growing involvement in the workforce and increasing financial independence.

How divorce impacts women’s finances

This independence also means divorced women are less economically disadvantaged than in the past. While this is good news, the income gender gap still persists and can significantly increase after a divorce.

According to the Pew Research Centre, in 2020, women in the U.S. earned 80.4% of what men earned. A study by the London School of Economics found that after divorce, working women suffered a 20% drop in income, while men enjoyed a 30% increase. The poverty rate for women after divorce is also almost three times that of men.

With that context, it’s easy to see why women rank money as their top concern and challenge during divorce. Here are seven steps you can take to protect yourself financially at each stage of the journey.

Know the value of what you own and what you owe.

Pull together all your legal and financial information. This includes bank and investment statements, RRSPs, RESPs, TFSAs, employer-sponsored pensions, titles to property, insurance policies, appraisals, credit card statements, lines of credit, mortgage and loan documents, for example. Taking inventory of your assets and debt will help decide how to divide property and address outstanding debt. Be sure to differentiate what you each owe personally and as a couple. The borrower listed on a loan agreement is responsible to repay the full amount of the loan.

2. Manage joint accounts.

Decide as soon as possible what you want to do with joint accounts. Do you want to close them or keep them open? It may make sense to keep some joint accounts open at least temporarily so joint debt, such as mortgage payments, can continue to be paid from the account. This will allow you to both maintain access to the funds. It’s a good idea to get advice from a lawyer or mediator as to the best course of action. For example, you may want to create a formal agreement about which bills are to be paid from the joint account and how much each of you need to deposit monthly. Talk to your financial institution to get the details about any joint accounts so you have a clear understanding of requirements around access.

3. Remove your spouse as an authorized user on your credit card and cancel joint credit cards.

If you don’t, you are equally responsible for any debt your partner incurs. If you don’t have one, consider setting up credit in your own name to establish a credit rating of your own.

4. Check your credit report.

If you have closed joined accounts or paid off loans, update your report to ensure these changes are reflected.

5. Understand your monthly cash flow.

Break out how much income you have coming in each month and how much you’re spending. This will help you create a post-divorce budget and financial plan for the future. Your post-divorce budget should take into account your new living arrangement. This includes considerations such as whether you’ll rent or buy, or whether you’ll need to spend more on gas if you’re moving further from work, for example.

6. Review and update your beneficiaries for your assets.

This includes pension plans, retirement and savings accounts and insurance policies. It is also important to remember to update your wills and powers of attorney as soon as possible. If you don’t remove your former spouse as beneficiary, they could still get those benefits after your divorce. In the case of powers of attorney, your spouse could still act on your behalf making financial and health care decisions in the event of incapacity after your divorce.

7. Let the Canada Revenue Agency know about your separation or divorce.

The change in your marital status could affect your benefits and credits eligibility. You will also have to think about how divorce will impact your income tax filing.

Your Raymond James advisor can help you navigate your finances through the emotionally difficult time. Statistics and factual data and other information are from source Raymond James Ltd. (RJL) believes to be reliable but their accuracy cannot be guaranteed. Information is furnished on the basis and understanding that RJL is to be under no liability whatsoever in respect thereof. It is provided as a general source of information and should not be construed as an offer or solicitation for the sale or purchase of any product and should not be considered tax advice. Raymond James advisors are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters. Securities-related products and services are offered through Raymond James Ltd., Member - Canadian Investor Protection Fund. Insurance products and services are offered through Raymond James Financial Planning Ltd. (“RJFP”), a subsidiary of Raymond James Ltd., which is not a Member - Canadian Investor Protection Fund. When providing life insurance products, Financial Advisors are acting as Insurance Representatives of RJFP.