THE DISCOUNT DIVORCE
YOUR HEART’S BROKEN, BUT YOUR WALLET DOESN’T HAVE TO BE NEXT: 13 WAYS TO LIMIT THE FINANCIAL PAIN.
THERE'S PROBABLY NO SUCH THING AS AN EASY DIVORCE. YOUR HEART IS BROKEN, BUT THAT DOESN’T MEAN YOUR WALLET MUST BE, TOO
The average cost of an uncontested divorce is $ 1,845, but a contested divorce can cost anywhere from $6,145 to $87,974, with the average being $ 13,638, according to Canadian Lawyer’s 2015 legal fees survey. But this doesn’t factor in moving fees, new living expenses, the division of your assets and debts, and possibly child and spousal support.
No surprise then that to reduce money stress, nearly one quarter of divorced or separated millennials and gen-Xers delayed their divorce because of unexpected costs, a recent TD survey found.
“I have a friend who is in for $ 280,000 ( in legal fees),” said Dean Bergsma, an Edmontonbased divorce mediator. “It’s been going on for four or five years and it’s a complex case ... But divorce does not have to be expensive.”
It’s possible, he said, to have a split that is financially fair and that fits your family situation without having to go broke. Here are 13 tips to having a money smart divorce.
BEFORE THE DIVORCE 1. Educate yourself about your finances.
“With so many people, their level of financial literacy is not very high. On top of that, they may not be involved in the family finances,” said Sharon Numerow, a certified divorce financial analyst at Alberta Divorce Finances. “The less you are in the know, the less you’re equipped to make decisions, and divorce demands permanent decision making.” Start by figuring out what you and your spouse have in terms of assets and debts. Print out your financial statements. If you’re lost, consider seeking guidance from a financial adviser.
2. Make yourself a budget.
How much are each of you currently making and how is that spent? Now, if you leave, how much will you need to cover rent, living expenses, vehicle costs, child-care fees or possibly child support and maybe spousal support, etc.? “The biggest challenge for couples going through divorce is now we’re going to take the same pot of money and try and support two households rather than one,” Numerow said. “A couple would need 30-per-cent more income to enjoy a similar standard of living in two households as they did when they were in the same home.”
3. Check your emotions.
“There are big problems when people decide they’re going to be real jerks,” said Wendy Olson- Brodeur, president of The Financial Divorce Specialist Inc. “You can find yourself a real hard-nosed litigation lawyer and fight for every drop of blood. That is going to cost a lot of money and you just don’t know what’s going to happen at the end of it.”
4. Don’t do stupid sh* t that you’ll pay for later.
For example, don’t run out and max out your credit cards or spend all your money on a trip to Vegas with the boys because you’re assuming that half of it will be covered by your soonto- be ex, Bergsma said. “Once you start into that vortex of conflict and everybody is out to get the other person, you can’t get off the train.”
5. Consider your options for the divorce process.
In a divorce, people can self- represent; they can seek help from a mediator; or they can also choose a collaborative team that may include lawyers, mediators, counsellors, child specialists and a financial analyst. In Alberta, mediation can range from $ 300 to $ 700 per hour. The hourly rate for collaboration will likely be more, because you’re paying for multiple professionals. Meanwhile, certified divorce financial analysts may charge $ 150 to $300 an hour.
“Spend a bit of money on the process in the beginning so you’re not spending a lot of money trying to fix it later on,” said Darren Gingras, chief executive of The Common Sense Divorce. ( The average cost at The Common Sense divorce is $4,500 per person for the services of a team.) The Canadian Lawyer’s Legal Fees Survey estimates that a family trial of up to five days costs an average of $35,950.
DURING NEGOTIATIONS 6. Understand how much you may pay or receive in child support.
Child support is mandated by the law and is based on custody. “The more time that a child is with one parent, the other parent is more responsible financially,” said Faisal Karmali, a certified divorce financial analyst at Popowich Karmali Advisory Group CIBC Wood Gundy. In the case of a full custody situation, an Ontario resident making $60,000, would pay $546 a month in child support for one child and $ 892 for two children. The final amount varies as determining income can become complicated if the calculation includes dividends, bonuses, corporate income, etc.
7. Be aware that spousal support is not a given.
It is negotiable. For example, you may offer to give up an asset in lieu of spousal support payments, or agree to pay for a certain period of time. “If applicable, the amount and duration is negotiable. You may offer to pay a lump sum, make periodic payments — which can be reviewed at a future time — or pay a combination of both,” said Matthew Ball, president of Fairway Divorce Solutions, a dispute resolution company.
8. When you split up, you split everything, including debt.
“I’m dealing with a young gal who’d been married maybe four years and found out that her spouse has an addiction problem with gambling. The debt keeps going up and up,” Olson-Brodeur said. “The problem is that the law doesn’t necessarily protect us. She will likely be responsible, from a legal perspective, for paying half of that debt back.”
9. Be mindful when choosing your half of the pie.
Half today isn’t always half tomorrow. “Let’s say I’ve got a car worth $ 50,000 and a pension worth $50,000,” Olson-Brodeur said. “I agree to take the car while my spouse gets the pension. Guess who’s ahead in the long run? The pension as an asset grows over time while the car keeps devaluing.” Your assets may also have tax implications, such as taxes owing when you sell profitable equities.
10. Don’t anchor yourself to your home at all costs.
“Divorce the house before you divorce the spouse,” Karmali said. “I’ve seen many people, primarily women, who’ve stayed in a house they can’t afford ... They may be giving up on other cash, retirement savings, education savings and, all of a sudden, they’re left with the expenses of taking care of a home and other expenses.”
11. Consult an expert about legal and financial issues.
“Don’t make assumptions about the settlement before you have your facts,” Bergsma said. “The Internet is a wonderful place to look at picture of cute kittens. It’s a lousy place to get your legal information.” For example, you may assume that you will receive half your wife’s inheritance in a divorce, but it may be excluded from the division of property if it’s been kept in her name. Or you may be surprised when an Alberta judge uses the current date to determine the value of your assets. ( Ontario courts use the date of separation.) Imagine having your day in court four years after you’ve separated and finding out that half of your savings from the last few years is going to pay for the debt that your soon-to-beex has since accumulated.
AFTER THE DIVORCE 12. Be aware and live within your means.
“Many people (think): ‘I’m 40-years-old. I’m pressing the reset button. I refuse to move into a condo. I refuse to not have my Audi,’” Bergsma said. “People make poor choices because they’re emotionally hurt and they’re doing retail therapy, just with bigger numbers.” You also want to be prepared for the unexpected: for example, what if your ex injures himself, can no longer and therefore does not have income to pay spousal support?
13. Don’t be afraid to revisit the agreement terms.
Hopefully, this is done amicably if circumstances change. Some contracts are nonnegotiable, others have time provisions written in so couples can revisit terms such as spousal support. “Right from the beginning, set up roads of negotiation because then after the agreement is done, if things need to be addressed, you’ve already got a process in place,” Gingras said. “Choosing a process that is amicable is better for the kids, better for your finances and, ultimately, better for you.”