The end of a marriage can be devastating for everyone involved, regardless of the circumstances by which it occurs. Sometimes, if both partners are wiling, it’s possible to work through your marital problems, but unfortunately this isn’t always a viable option. Getting divorced will play havoc with your emotions, but it’s important to try and keep a clear head to deal effectively with the financial issues involved so that you can resolve your family matters with as little distress as possible.
Your Provincial Laws
When you first start thinking about your finances, the most important thing to understand is the laws in your province that pertain to asset distribution. If your property is considered jointly owned or personally owned according to whether or not it was acquired through the efforts of one or both partners, it is important to remember that this doesn’t automatically mean that any and all property you acquired while married counts as jointly owned.
Bank Accounts, Assets, and Investments
The simplest way to divide cash and assets, if both partners are agreeable, is to split everything you currently have down the middle, or agree to split assets based on what assets and debts each party brought into the marriage, and contributed during it. Either option can work when both partners are employed, and there are no children involved.
If, however, you have children, it’s likely that you or your partner has been out of the workforce—and therefore neither of these options might be viable. When one parent has worked outside the home building a career that will continue to generate income, and the other has spent that time doing unpaid work in the home, asset division is more complicated. Generally, the parent who was out of the workforce won’t be able to re-enter it at a comparable income level to the parent who continued to work. In some instances, the courts typically direct the non-custodial parent to make financial contributions, such as mortgage payments, if the custodial parent’s income is significantly lower. In all other situations, the principles of equitable distribution apply.
The House and Mortgage
Splitting up possessions and any cash you have in bank accounts is relatively simple—the mortgage is not quite so easy. If you and your partner have a mortgage, you typically have three options: both parties move out and the house is sold, one person remains in the home and buys out the other party, or you both retain ownership and split the mortgage payments. The first option is the cleanest: the mortgage is paid off, and both parties make a fresh start in a new house. Sometimes, however, it’s not financially viable to sell right away: if the housing market took a downturn since you bought the property, you might end up owing money on the mortgage.
Often the second option is preferred if there are children in the marriage, with the custodial parent remaining in the home and buying out the other parent. If one partner will retain ownership of the house, the mortgage should be refinanced According to money.co.uk , “when two people take out a joint mortgage both are agreeing to be equally liable for the debt for the duration of the mortgage, not just while you live there”. This is also true in the US and Canada: if both your names are on the mortgage, you’re both responsible for ensuring it continues to get paid, and both liable if there are any future payment problems. Therefore, if you agree that one partner will retain ownership, the mortgage and title deed should reflect this as soon as possible—preferably with most of the details sorted out before the divorce is final. Refinancing isn’t always possible, of course—for this option to work, the partner who’s retaining the house must have the income and credit rating needed for mortgage approval.
If the mortgage is almost fully paid, or if selling the house isn’t financially viable, you may decide to retain the house and split the mortgage payments. For the same reasons as outlined for the second option, it’s a good idea to get the agreement in writing, even if you’re still on pretty good terms with your ex. If he or she defaults on their share of payments, it’ll end up reflecting on your credit score, too.
What about Debt?
Mortgage aside, it’s generally a bad idea to continue holding jointly-owned debt after a divorce. The best option is to cancel all joint credit cards as soon as possible: neither party should have the ability to generate more jointly-owned debt, particularly if the divorce becomes acrimonious. While it’s preferable to pay off all debt in full, this isn’t always possible. In this case, once the amount of debt each person is responsible for has been agreed on, each balance should be transferred to a new personal credit card