No one wants to think about

divorce, but approximately one of

every three marriages now ends

that way, and there are always

financial consequences –

some obvious, some not. In the

absence of wise counsel during

development of the separation

and divorce agreements, financial

implications can be devastating for

one or both former partners.

Starting overRefocusing your financial picture after divorce

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Separating creates profound

anguish and uncertainty, yet

at the same time each partner

has to make important financial

decisions about spousal

and child support, joint bank

accounts, pensions, retirement

savings plans, the house,

the car, the kids... where do

you start?

A trusted financial advisor who

knows your circumstances, will

be able to clarify information

about your current financial

situation and can help realign

your retirement and savings

goals based on your new set

of circumstances.

Frequently, one member of

the couple is not as aware

of house-hold finances and

arrangements as the other.

He or she will need to have a

clear picture of their economic

situation and projected needs

while moving through the

process of splitting assets

and arranging for spousal

or child support.

The possibility of separation or divorce should be anticipated when there are severe problems in a relationship. Both parties need to involve themselves in the family finances well in advance of separation by becoming aware of the real costs of running the family home, the overall financial situation, outstanding debts, and current assets. This information should be documented, as it may become difficult to obtain after separation occurs.

Men and women who anticipate separation should also be aware of the potential financial implications of splitting assets and covering future spousal and child support payments. These responsibilities may continue for a number of years. In addition, there will be both initial and ongoing costs for separate living arrangements.

Both parties should also be aware of the potential financial cost of destructive anger and resentment that almost always follows a separation. If the separating partners can manage to stay level-headed, the process of dividing assets will be easier and less likely to result in lengthy court battles. Approaching issues with revenge in mind will inevitably inflict needless anger, pain and guilt not only on the separating spouses, but on any children involved.

Counselling for anger management and to help heal painful emotional damage from the separation may well benefit both parties and may also help children through the trauma of this life-changing event with less damage. Minimizing the damage you do to each other now will make it more likely you’ll be able to deal civilly with each other in the future.

Working out the finances

Two sets of legal rights related to finances arise on the breakdown of a relationship: rights to division of property acquired during marriage, and rights regarding support. You may be

required by your provincial laws to make what’s called an “equalization payment” upon dissolution of a relationship (or you may be entitled to receive one).

In some cases, partners in common-law relationships may be able to make claims against assets in the name of, or owned by, the other person. The rights afforded to common-law couples are expanding. Your lawyer will be able to explain your position to you.

Upon separation, we can help you review and revise beneficiaries for registered investments, insurance, pension, and your will. Do not wait until the formal separation agreement or divorce decree. In many provinces, any gift given in a will to a former spouse is considered null and void on divorce. But if your death should occur prior to a finalized divorce, the provisions in an unrevised will remain applicable: if you had willed everything to your spouse, that’s how the estate will be dispersed.

Spousal and child support

You will likely need a separation agreement to cover the period prior to the formal divorce, than a divorce agreement. You can incorporate both spousal and child support in the sepa-ration agreement, and carry it forward into the divorce settlement. Support payments may have tax implications. Ask your lawyer for clarification.

Each spouse should have a lawyer. On divorce, a judge may review the support terms, and may revise them.

Tax implications

In a separation agreement, tax issues should be taken into consideration with regard to the splitting of assets. For example, a husband may wish to transfer a $10,000 mutual fund, at cost, to the spouse. Interest and dividends are taxable in the recipient’s

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hands. But if the wife sells the fund before the divorce is finalized and triggers the capital gain, the husband must report and pay tax on that gain unless both jointly agreed, in writing, that she would have the liability.

After divorce, the husband would no longer be responsible for the capital gains tax — but tax implications still need to be considered. An asset with an inherent tax liability is worth less in reality than an asset of similar value with no tax liability. Cottages, RRSPs and other investments may be split up, but will a spouse receive the asset with or without tax liability? If a registered asset is split, there will be an underlying tax obligation down the road; a $30,000 car is not a direct trade for a $30,000 RRSP, because the car represents simple cash value and the RRSP will be taxed.

Separating couples, even those with seemingly modest assets, would be

wise to employ tax accountants who can review separation and divorce agreements to see if any issues have been missed.

It is seldom advisable to attempt reaching settlements without expert advice. Even if both parties are dealing amicably, the lawyer, accountant, and financial advisor all offer unique knowledge that can help ensure the divorce agreement works out to maximum benefit and minimum inconvenience for both parties. The cost in fees could be far less than potential costs in taxes or legal stitches dropped that have future implications.

Cases where divorces do incur high legal fees are almost always directly correlated to the level of rancour between the parties. Anger, resentment, and desires for revenge are extremely expensive and highly destructive. Would you rather incur high legal costs or pay for your son’s university education?

Working through the emotions

Anger, hurt, grief, denial – they’ll all come flooding in just when you’re trying to re-build your life and ensure your children survive with as little pain as possible. For some couples splitting up, focussing on children’s needs helps the adults work through the process; if both parents genuinely concern themselves with the best interests of the children they both love, a degree of civility may be achieved.

But for most, emotional pain can all too easily manifest itself as destructive responses to the former spouse, or may surface in the form of emotional disturbances like depression. Some-times, all you need is a trusted friend you can vent to while you get over it. But you may need more support, and self-help groups, counsellors, or therapists can be a great help. Your family doctor can refer you to agencies, organizations, or groups

3 Determine, locate and notify beneficiaries

3 Arrange for burial or cremation and a funeral service

3 Apply for life insurance benefits

3 Prepare an inventory of the estate’s assets and debts

3 Arrange for payment of all debts

3 File an income tax return for the year of death and returns for the estate

3 Administer testamentary trusts

3 Distribute estate assets

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Independent advice is critical in dealing with the immensity

of issues arising from separation and divorce. If you had

good working relationships as a couple with various

advisors, you may have little choice but to begin working

with other professionals.

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SHANNON BOSCHY BFA, CFP Mutual Funds Representative, Financial Security Advisor Investors Group Financial Services Inc. Financial Services Firm

Tel: (613) 282-5370 Shannon.Boschy@investorsgroup.com

1501 GRACE STREET OTTAWA ON K1M 7C1

that can help you get through this troubled time. Start there to seek help if you find you’re having too much difficulty coping following the separation. Your lawyer or local social or family services departments may also refer you to groups or therapists who can help.

A final word on the value of family, friends and professionals

While this could very well be one of the most trying periods in your life, most people are able to look back once the dust has settled and realize they’ve emerged stronger. Many people who’ve gone through a separation find the whole experience has helped them rediscover themselves and develop a new-found sense of confidence. They find they’re able to focus on growth and self-actualization. In this sense, positive change occurs if we allow ourselves the time to heal and look forward. Being patient and drawing upon resources around you – family, friends and professionals – will help you see the light at the end of the tunnel.

When it comes to the business of dividing assets, you need

to recognize assets cannot be swapped on a dollar-for-dollar

basis. A $30,000 RRSP with its deferred tax liability, for example,

is worth less than a $30,000 vehicle. Recreational properties

and other assets with deferred capital gains should also not be

viewed at face value.

Insurance products and services distributed through I.G. Insurance Services Inc. Insurance license sponsored by The Great-West Life Assurance Company. Written and published by Investors Group as a general source of information only. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on your specific circumstances from an Investors Group Con-sultant. Commissions, fees and expenses may be associated with mutual fund investments. Read the prospectus before investing. Mutual funds are not guaranteed, values change frequently and past performance may not be repeated. Trademarks, including Investors Group, are owned by IGM Financial Inc. and licensed to its subsidiary corporations. © Investors Group Inc. 2012 MP1156 (06/2012)

SHANNON BOSCHYBFA, CFP