Don’t let a divorce put you in the poorhouse

It’s an unfortunate fact that large numbers of first marriages end in divorce, with subsequent financial difficulties for both partners. What can couples do to avoid the financial stresses in the event of a divorce or breakup? Here are a few tips.

Research has shown that some 43% of women who have undergone a marital breakup (divorce or separation) had a substantialdecrease in household income, while only15% of separated or divorced men had a financial decline. It takes an average person 15 years to recover from a divorce financially – some never do. In fact divorce cases routinely making up more than 90% of all new cases brought before the civil courts in this country.

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To avoid getting into this kind of mess, it’s important to manage the risk. The obvious answer is to have a prenuptial agreement or cohabitation agreement if living common law – this is an agreement that is drafted by your lawyer before you get married. This kind of agreement is a written contract between two people who are about to marry or live together in common law, and it sets out the terms of possession of assets, treatment of future earnings, control of the property of each, and potential division if the marriage or common-law arrangement is later dissolved.

These agreements are fairly common if either or both parties have substantial assets that they are bringing to the marriage, children from a prior marriage, potential large inheritances, high incomes, or if they have been “taken” by a prior spouse. This may a touchy subject, so take care when discussing it with your partner.

If you are already married, here are three actions you must take:

1.Know your financial situation: Be fully aware of what you own, what you owe, and what you are committed to. Joint debt is not a 50/50 split – it’s 100/100. Know precisely how the ownership of your assets is structured.

2.Prepare for the worst-case scenario.And that means being prepared to go it alone tomorrow morning. Here’s how:

If you share a financial advisor with your spouse, it is very prudent that you have a clear understanding of what your financial circumstances are. You should attend the semi-annual or annual meetings with your spouse. Know what your assets are, what your spouses’ assets are, how they are invested, and how much risk is involved.

Have solid relationships with your financial advisors, make regular contact with them for advice, whether about the mortgage or restructuring debt.

If you are already thinking of divorce, establish a relationship with a family lawyer. Know what the hard numbers are before you exit. It’s your money, even if it is combined with your spouse. You have a legal claim to the assets, and yes, half the debts. Make it a point of first importance to find out where you stand financially.

Courtesy Fundata Canada Inc. © 2016. Robyn Thompson, CFP, CIM, FCSI, is president of Castlemark Wealth Management. This article is not intended as personalized advice.

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