“I want a divorce, but I’m worried about how it will affect me financially — especially in the current economic climate. Is it a bad idea to divorce in a recession like this?”
Recent economic times have seen real-estate prices fall and stock portfolios depressed in value. Real estate may be difficult to sell, and your stock portfolio may be too depressed to sell at the bottom of the market. Pensions may be currently underfunded; for defined benefit plans, if your employer is insolvent or in difficult financial straits, you might not be assured of receiving the full value of your future pension.
Another issue is that obtaining financing to help one’s spouse fund an equalization payment to another spouse is difficult. And if one party owns a business, that company may need additional financial support and may not be able to free up assets tied up in that business to assist in a divorce. The business may be suffering as well, and income may be down for the spouse who operates it, reducing their capacity to pay support. If either spouse has concerns about their job, this too could raise concerns, as there may not be the cash flow to fund two separate lifestyles.
Other financial issues that must be considered include:
- The division of assets between spouses;
- The financial plan of each spouse upon separation and divorce;
- The ability to fund your children’s ongoing expenses and how to divide this funding;
- The future cash-flow requirements of separating spouses; and
- The financial state of each spouse’s retirement portfolio.
The reasons for divorce exist in both a good and bad economy. However, your capability to separate yourself from your spouse and divide your marital assets is a question that is becoming more relevant. You now need to develop your own lifestyle, including the rent or purchase of a new residence, perhaps an additional vehicle, and divided responsibilities for raising your children when you require such things as daycare. You must consider all of these factors when a weak economy, job losses, plummeting house prices, and personal equities affect all of us.
An important issue is the impact that current financial conditions will have on your divorce. You must look at your own personal situation in a financial context. Each situation is somewhat unique, and solutions should be tailored to each personal situation. Consult a financial professional, such as a chartered accountant and business valuator whose combined expertise can help perform this necessary complex analysis and provide you with a reasoned financial plan.
Here are some questions you need to address when assessing your ability to divorce:
- How will you deal with the family residence? Can you or your spouse keep your prior residence? If yes, is this a major factor in the division of your assets? Are there enough assets to affect an equalization payment without the sale of the residence?
- Will you have to establish your own residence apart from your ex-spouse? Are you planning to buy or rent?
- Have you established a budget for your post-separation cash requirements? Does your budget rely on support payments from your spouse? Is this a realistic assumption given your past relationship?
- Have you considered your retirement position based on a divorce? Are you a member of a pension plan? Is your pension plan supported by a company with a strong financial backing?
- Have you invested in the stock exchange? How well are these funds are doing? Will your divorce affect how you might invest these retirement funds in the future?
- Have you determined such costs as daycare or babysitting? Have you considered education costs for your children?
- Does either spouse own or manage a business? If the business is struggling, might this have an impact on support that you might be counting on? Can your spouse pay an equalization payment you need to get you started on your new lifestyle?
- Are there any extraordinary expenditures you need to consider, such as a second vehicle?
- Have you considered health-care and private-insurance costs that your spouse’s employer covered? Will they continue post-divorce?
- If you were to die prematurely, how would your dependents make out?
- Are you employed? Would you like to upgrade yourself in the workplace with additional training?
- Does your ex-spouse have a good livelihood? Will you depend on this support to maintain yourself after separation?
- Is there any likelihood of your ex-spouse losing their position, thus jeopardizing future support payments?
About the author of this Ontario Divorce FAQ:
Gordon Krofchick, CA, CBV is President of Krofchick Valuation Partners and is a forensic accountant with over 30 years’ experience in working with issues that impact a matrimonial separation, divorce, or other complex financial and litigation issues.