In most cases a divorce is a tumultuous time in a person's life – emotionally and financially. These effects are felt for everyone involved, including children. Statistically, in Canada female lone-parent families have a lower after-tax income ($39,400) compared to male lone-parent families, whose after-tax income is on average $51,800. The Canadian Department of Justice also reports that family debt is higher and net worth is lower among lone-parent families.
Finances pose a scary reality for divorcees, but there are ways to secure a strong financial future for yourself and your children now, and in retirement. Here are some tips to help you maximize your financial outlook.
1. Carefully Consider Your Real Estate Decisions
Many people facing a divorce think that selling their house is inevitable, but Jason Heath, a financial expert for Money Sense recommends avoiding knee-jerk reactions. "The cost of buying and selling can be expensive," he says. "If you can afford to stay in your matrimonial home, even temporarily, it could be a way to get your bearings."
Of course, if one spouse decides to stay in the home, the other may need to be compensated for their initial investment in the property. Debbie Sullivan, a financial advisor with RBC Wealth Management points out that "women often want to keep the house, but it can be more difficult if they're not working or if they need to refinance a mortgage."
Homesharing is an ideal solution that allows one spouse to keep the family home by bridging any financial gaps with the supplemental income that results from having a housemate. Plus, having a housemate offers other added benefits (like having someone to help around the house).
Real estate is an investment that provides equity and selling a home in favour of renting is risky if there's any chance that getting back into the market will be difficult. Owning a property can set a divorcee up for a better financial future and retirement in years to come. Home sharing helps people, especially women, stay in their home in the interim after a divorce. Staying, even for a year, can offer the time needed to reflect on long-term financial goals and provide the time required to make a sound decision regarding buying or selling property.
2. Start Long-Term Financial Planning Now
Most couples have a post-secondary education and retirement plan that relies on two incomes. There are ways to ensure that you reach these goals. Talk to your financial advisor early in the process about how you can readjust your retirement plan to ensure a secure financial future for yourself and your children.
Most couples' retirement plans are based on living together in retirement which is less expensive than living alone. Now that you're divorced, you'll need to adjust your long-term retirement plans. Part of the separation will be financial as you and your ex close joint accounts and open new individual accounts. Splitting retirement accounts can be difficult and may require the help of a lawyer to do so fairly.
3. Look at Your Benefit and Insurance Coverage
It's likely that any benefits or insurance covered by an employer will be affected. Consider whether your dental, optical or prescription coverage will change and if so, how that will affect your monthly budget. It may be worth talking to an insurance broker about your existing coverage to see if there's an affordable way to protect yourself and reduce any medical-related expenses.
4. Create and Stick to a New Budget
Having a budget that's realistic is an important part of financial success. You may already have a household budget, but this will need to be adjusted in light of your divorce. Balancing your budget may require you to make some lifestyle changes and cut back on some unnecessary expenses. Doing so may be a challenge but keeping to that budget and prioritizing savings will be extremely important to ensuring a secure financial future down the road.