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During divorce or separation, many people search for help on how to start organizing themselves and prepare for the money matters that will inevitably come up. Most people start out with the feeling that everything will be divided equally and will be handled in a respectful manner. However, money can be a contentious issue and used as a bargaining tool in order to reach a resolution.
There is usually one person in the relationship that is more financially savvy than the other spouse and that person may feel disadvantaged for their lack of knowledge. Know that part of the process is to help both parties understand their finances so they each can make informed financial decisions regarding the split of the marital property.
What’s the first step to prepare yourself? First, gather your financial documents (eg, statements of investments, mortgage(s), lines of credit, loans, credit cards, property assessments, income tax returns, notice of assessments and business statements [if any]). Get familiar with your money and where it is held if you are not typically the person in the relationship that took control of the family finances.
Try to understand that the division of the property must be fair but it may not always mean a 50/50 split. This is due to tax implications of certain assets and valuations. And speaking of taxes, we have to consider the taxes owing on certain assets like pensions, RRSPs, non-registered accounts, and real estate that is not the primary residence. The tax rate will vary for each person depending on their own income situation.
Before you decide that you want to keep the house, find out if you will qualify for the mortgage. Also, can you afford the housing maintenance and upkeep?
If you own a Defined Benefit pension, many people feel that the “commuted value” listed on their pension statement is the value of their pension. This is a huge mistake and you should insist on getting your pension properly valued by an Actuary or pension specialist. The difference could mean thousands of dollars!
Next, if you are the recipient of spousal or child support, ensure the payor has life insurance to support the financial obligations of the payments over time. And – make sure you are the irrevocable beneficiary if you are the recipient of these payments. Better yet, purchase a life insurance policy on the payor so you are in control of the policy, you pay the premiums, and you are the beneficiary. Click here for a free, no-obligation quote.
Finally, you will need to redo your Will, Personal Directives, and Power of Attorney, if you haven’t already done so.
Remember that you don’t have to go through this alone. Seek out the help of a divorce financial expert to guide and help educate you on the financial matters. Contact me for any questions or concerns you have regarding your financial situation.
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