The financial impact of divorce
There’s no getting around it, both emotionally and financially, divorce is hard.
Financially, you may lose a large portion of your assets, or have to pay spousal and/or child support.
Although people’s finances can bounce back from divorce, it does take time.
Here are some guidelines to follow to help you financially recover from a divorce or separation.
Ways to bounce back financially after divorce
Create a new budget
Knowing that your household income will likely fall post-divorce, it will be easier to manage your money day-to-day if you revise your household budget to your situation.
Adjust your income to include any changes to government benefits, and child or spousal support. Update your expenses to include any changes in childcare expenses, housing and household costs and your portion of any pre-divorce debt. If there is a shortfall in your budget, look for ways to economize to help balance your budget. When you can, start saving towards an emergency fund.
Either spouse in an opposite-sex or same-sex marriage can be impacted by divorce differently, but of women who responded to a Canada Life survey, 78% of women who worked with an advisor throughout their divorce indicated long-term goals like managing their post-retirement assets had increased in importance.
Keeping or selling your home
In some situations, divorcing couples decide to sell their home and split the proceeds. Others choose to have 1 spouse stay in the home and buy the other partner’s share by refinancing or giving up other assets.
Although selling the home and splitting the selling proceeds sounds easy, the cost of selling and buying different homes can be significant.
You’ll need to determine how much you can afford for housing. In some cases, it may make sense to rent your home for a while until your finances stabilize.
Review your insurance needs
A divorce can drastically change your insurance coverage.
If you relied on your spouse’s healthcare benefits for all or part of your coverage, you’ll need to consider if you need to change to your workplace benefits or purchase individual healthcare insurance.
Your life insurance coverage may also need to increase so you have the coverage your dependents will need if something happens to you. You may also need to consider disability and critical illness insurance.
Review your estate plan
You’ll likely need to revise your will and powers of attorney and change beneficiaries on life insurance policies and investment accounts.
Revisit your financial goals
Once you have a handle on your post-divorce finances, it’s time to adjust your previous goals and create new ones based on your new reality.
Although you may wish to get into a new relationship at some point, you should at least for the time being, plan to save for retirement as a single person.
Look at other short-term and long-term goals such as saving for a child’s education, paying down debt or other things such as a vacation.
Create a plan to achieve your goals
Work with an advisor to set-up savings strategies to help make your post-divorce goals a reality. This may include changing your investment strategies or looking at ways to increase your income such as changing your career path or picking up a side-hustle.
Based on our survey, 63% of women who worked with an advisor throughout their divorce indicated that investing their assets had a greater importance now (compared to 42% of those that didn't work with an advisor).