The Finances of Separation and Divorce

Photo of a man making notes Scrabble letters spelling the “divorce”.

According to Statistics Canada, nearly 2.8 million Canadians were either separated or divorced in 2017. The Canadian divorce rate is 48%, while in Ontario, 42.1 per cent of marriages will end before they reach their 30th anniversary. The end of your marriage will not only change your family life, but it will also have an impact on your finances. 

Dividing Property

In Ontario, the law states that the value of any kind of property that was acquired during the marriage and still exists at separation must be divided equally between the spouses. And any increase in the value of property owned by a spouse at the date of marriage must be shared. This often results in a payment, called an equalization payment or an equalization of net family property, from one spouse to the other.

There are some exceptions, called excluded property, which may include gifts or inheritances received during the marriage from someone other than a spouse (provided that they were not used towards a matrimonial home.)

Matrimonial Home

The family home where you live and where your kids feel most comfortable may also be your most valuable asset. Both spouses have an equal right to stay in the home unless a judge decides that one of you must move out. That means you can’t sublet, rent, sell or mortgage it without the other’s permission. When you separate, try to agree on who should stay in the family home and whether or not it’s affordable for one of you to do so. If you can’t agree, a lawyer or mediator can help you decide.

Spousal Support

In Ontario, the law expects adults to look after their own needs to the best of their abilities, but when a marriage breaks down, the spouse with more income or assets may have to pay support to the other. The factors that determine the amount of support are the supported person’s needs as well as how much the supporting person can afford to pay.

Revise you Financial Plan

Because of these changes to your assets, your home and your income, it’s important to review your current financial situation. Calculate what your net worth will look like after separation (everything you own less everything you owe.) Determine your new monthly cash flow, how much money is coming in and how much is going out and make any necessary adjustments to balance your budget. Now that you’re a smaller household, it may make financial sense to downsize to a smaller home that’s less expensive, because maintaining two households is generally more expensive.  

You may also want to revisit your other financial goals, like saving for your kids’ post-secondary education or your retirement, or (re)building an emergency fund, to see what adjustments you may have to make to continue to stay on track to achieve them. Talk to a financial planner or advisor to get the help or support you need through this difficult transition.

Update your Will & Powers of Attorney

You may also want to review and update your will as well as your powers of attorney for property and personal care so that they reflect your new situation. If you have a life insurance policy, you will likely want to change the named beneficiary if it was your former spouse.