By Carla Hindman, director of financial education, Visa Canada
Even in a strong economy, divorce is often difficult and costly; but in a prolonged recession, it can be financially devastating. For example, suppose that:
• Neither spouse can afford to buy out the other and you're forced to sell the house at a loss.
• One of you has been unemployed for a prolonged period and you've run up major debt.
• The retirement and investment accounts you've accumulated together and now must divide have lost significant value.
Even in an uncontested divorce, recovering from any of these scenarios would be difficult. But if your divorce is acrimonious, additional legal fees could leave you further in the hole.
Here are some important financial issues to consider when you separate:
Do-it-yourself divorce kits are widely available, but even couples with few assets who part amicably still need capable representation. That may mean hiring a lawyer who specializes in divorce to at least review your paperwork and make sure you haven't overlooked anything you might later regret.
To avoid a conflict of interest, you should each have your own attorney. Ask friends for recommendations, including those who have recently divorced. Ask lawyers you know who specialize in other areas if they can recommend a good divorce lawyer, or consult your local law society to see if they have a referral service.
You may also want to consult a financial planner for advice on how to fairly divide property whose value has escalated (or plummeted), calculate child support and ensure you're sufficiently insured, as well as explain potential retirement plan implications.
A good financial planner could save you money in the long run by helping to avoid prolonged court battles and mapping out a plan for future financial security. If you don't know one, your financial institution may be able to help, or you can search for a Certified Financial Planning professional on the Financial Planning Standards Council (FPSC)'s web site at www.fpsc.ca.
To protect your credit status, close joint bank or credit card accounts and open new ones in your own name; otherwise, an economically struggling or vindictive ex-spouse could amass debt in your name and ruin your credit. Be sure all closed accounts are paid off, even if you must transfer balances to your new account and pay them yourself. That's because late or unmade payments by either party on a joint account – open or closed – will affect both of your credit scores.
Check your credit reports before, during and after the divorce to make sure you're aware of all outstanding debts and to ensure that all joint accounts were properly closed. The major credit bureaus, Equifax and TransUnion, don't always list the same accounts, so to be safe, order reports from each. You can order credit reports for a small fee from each bureau.
For additional financial considerations related to divorce, visit the Life Events section of Practical Money Skills Canada, Visa Canada's free personal financial management site at www.practicalmoneyskills.ca.
Don't get caught up in the emotional turmoil of divorce and forget to protect your future financial interests.