Divorce: Organizing Your Personal Finances After a Separation

Going through a divorce is never easy. In addition to the emotional and psychological impact caused by the dissolution of a marriage on you and those around you, the legal and financial obligations of such an event can turn out to be a real headache. What happens to the home? Who gets the car? What do you do with your joint banking account?

All of these questions are legitimate when beginning divorce proceedings. Fortunately, by taking it step-by-step, you can turn the page on this difficult step in your life without too much hassle. Here, Hardbacon presents a complete guide to putting your finances in order during a divorce. As this is for informational purposes only, you should always consult a family lawyer in order to know all of your rights and responsibilities.

In the event of divorce, take stock of your personal finances

The first thing to do is to draw up a complete picture of your finances. This will let you know what is yours, both individually and with your ex, and what you owe. First, make a list of your possessions and their value. These include:

• Joint and personal bank accounts
• RRSPs and RESPs
• Insurance policies
• Your home
• Your furniture
• Your car

Next, you need to make a list of your debts. These include, among others:

• Lines of credit
• Individual and joint credit cards
• Your mortgage
• Your loans (vehicle, student, etc.)

You can always hire a financial advisor to help you see more clearly and determine the value of your assets. Consider collecting copies of important information, such as your paystubs, income tax returns, and bills and receipts for family-related expenses.

Divorce and bank accounts 

If you have joint bank accounts or joint debts, it’s best to take care of them as soon as possible after your separation. 

Joint accounts

If you have a joint account, you may consider closing it without delay to prevent your ex from withdrawing money without your consent. Unless otherwise agreed, the money held in the account must be divided equally between you and your ex-spouse, regardless of each other’s contribution. Be sure to switch your direct deposits to another personal account before closing your joint account.

Some separating couples choose to keep their joint account open for a period of time in order to pay for certain expenses. If so, you can make an agreement on how you will use your account. You can even ask your financial institution to have withdrawals approved by both account holders.

Joint lines of credit

If you and your ex share a line of credit, you are both responsible for borrowing from it, even if one of you uses it to buy personal possessions. If you no longer wish to be responsible for it after your separation, you must notify your lender that you’ll no longer use the credit granted and that you no longer want to be jointly responsible for your ex’s use of the line of credit in the future. You must also notify your ex-partner by email or registered mail. Both spouses remain responsible for any borrowing made before the separation.

To completely cancel your line of credit, you must contact your lender. You can end your contract only if you’ve repaid your debt in full. 

Joint credit cards

If you have a joint credit card, there are two possible situations. If you are “co-borrowers” or “co-applicants,” you and your ex-partner are both responsible for your balance, regardless of who made the purchase. If you no longer wish to be responsible for the expenses incurred with the card, the process is the same as with a line of credit: you must notify your financial institution as well as your ex-spouse. You will also remain responsible for debts incurred before notifying your bank.

If one of you is the cardholder and the other is an authorized user, the cardholder has full responsibility for the balance. The only exception is that purchases made by a married couple for the needs of the family are both spouses’ responsibility. As a cardholder, you can remove your ex as an authorized user by contacting your financial institution to prevent your former spouse from making more credit card transactions.

Your child’s RESP

If you are parenting a child with your ex, chances are you’ve signed up for a Registered Education Savings Plan (RESP). If only one parent is the subscriber, they’re free to use the amounts in the RESP, without requiring the other parent’s authorization. If you’re a joint subscriber, you can choose to continue contributing to the RESP so that your child can benefit from it later.

If you want to withdraw money from the RESP, keep in mind that doing so before your child is eligible may expose you to certain penalties. If you proceed, some financial institutions may require authorization from both parents before allowing you to withdraw any funds. Lastly, if you no longer wish to manage the RESP with your ex, you can also close the account and transfer the funds into a separate RESP. Please note that the money in an RESP may be the subject of financial compensation during a divorce.

In the event of a divorce, change your personal information and authorizations

As a security measure, consider changing the personal identification numbers (PINs) and passwords for all your accounts, especially those that you have shared with your ex. Also be sure to delete any personal data saved on your family computer. 

Your ex-spouse may have authorizations, also called “mandates” or “powers of attorney”, to carry out certain transactions or procedures for you, such as withdrawing money from your personal account. If you want to withdraw these authorizations, contact your financial institution to find out how. You should also keep your ex-spouse informed of any changes in writing.

If you move after your separation, be sure to change your address as well. Communicate your new address to your banks, insurers, government agencies and credit card issuers. This will ensure that you receive all information and are able to make your payments on time.

Updating your beneficiaries

In addition to your authorizations, you must also review your list of beneficiaries for certain benefits and plans, and remove your ex-partner’s name, if you wish. It must be done for:

• Registered retirement savings plans (RRSPs)
• Registered retirement income funds (RRIFs)
• Tax-free savings accounts (TFSAs)
• The Canada Pension Plan (CPP)
• The Quebec Pension Plan (QPP)
• Pooled registered pension plans (PRPPs)
• Employer’s pension plans

If you don’t remove your ex-spouse’s name, he or she may continue to receive benefits even after your separation or divorce. However, you may need their consent before you can remove their name as beneficiary.

Divorce and insurance

Your breakup will undoubtedly mean changes to your various insurance policies. If your former spouse has group insurance with their employer, you’ll no longer be covered by it after your separation. You’ll then have to subscribe to your own employer’s group insurance plan, or, if in Quebec, the public prescription drug insurance plan (RAMQ).

Regarding your life insurance, if you had designated your ex-spouse as beneficiary during your marriage, you should know that Quebec law cancels this designation in the event of divorce. If you want to keep your former partner as a beneficiary, you must therefore make a change with your insurer.

If you move, you need to terminate your home insurance policy and enter into a new one for your new residence. And even if you stay in your home while your ex is leaving, it’s best to let your insurer know about your new situation.

Lastly, make any changes required to your auto insurance. If you no longer share usage of your vehicles, you must change the list of primary and occasional drivers for each vehicle. This will likely have an impact on the amount of your premium, as the insurer’s multi-vehicle discount will be removed if you insure only one vehicle.

Divorce and your will

Since divorce is a major event in your life, it may be necessary to make changes to your will to better reflect your new situation. It’s possible that certain clauses in your will be automatically modified by your divorce. Consult a notary or lawyer to find out.

Inform the revenue agencies of your divorce

As soon as possible, inform Revenu Québec and the Canada Revenue Agency of your new reality. A separation or divorce can indeed have an impact on the amounts paid to you under certain government assistance programs, and even on your eligibility for certain benefits and credits. Payments of tax credits will also be adjusted.

Divorce and the division of family property or patrimony

Once the previous steps have been completed, the most important part of your divorce remains to be done: the division of the property. When you get married or enter into a civil union, you immediately create a family patrimony. This includes the assets that you and your spouse use for your family’s needs, regardless of to whom they belong. In the event of divorce, the following are included in the family patrimony:

• Family residences, including cottages
• Furniture used by the family in these residences (furniture, appliances, electrical and electronic devices, works of art, etc.)
• Vehicles
• Money accumulated in a pension plan

Property used by only one of the spouses, as well as property received as a gift or inheritance, don’t form part of the family patrimony. On the other hand, even if you’re the sole owner of your home or condo, it’s mandatory to have your ex-spouse’s authorization to sell or refinance the mortgage. In fact, a marriage or civil union has made your property your family home.

At the time of divorce, your family patrimony will be divided equally between you and your ex-partner. It’s the monetary value of the goods that will be shared, not the goods themselves. There are four steps to follow to determine the shared amount:

• List the assets at the time of your separation.
• Calculate the market value of your assets.
• Make a list of your debts, including those contracted to acquire and maintain the property, and subtract that amount from the amount of the assets to obtain the net worth of the patrimony.
• Make an equalization payment if the equity is different between the two spouses.

If you have to make an equalization payment, the formula is:

(Spouse 1’s property value – spouse 2’s property value) ÷ 2 = amount of equalization payment

As an example, John’s estate has a net worth of $150,000 while Mary’s estate is worth $100,000. Jean will therefore have to pay Marie $25,000. The equalization payment must be made in cash or through the transfer of ownership of an asset.

If you and your ex-spouse disagree about the division of property, you can appeal to a mediator. Otherwise, you can take your case to court. A judge will then decide on the allocation and may even award certain property to one of the parties.

In certain cases, it’s possible to derogate from the equal share rule. In fact, a judge can decide that one of the spouses would be wronged, in particular in the following cases:

• The marriage or civil union was of short duration.
• If one spouse has squandered property.
• If a spouse acts in bad faith.

The court will then grant an unequal division of property between the two parties.

Divorce and the division of matrimonial property

In addition to the family patrimony, you contract a matrimonial regime during your marriage. This includes assets not included in the patrimony, such as salaries, income properties, personal debts and objects used by only one of the spouses. It’s possible to choose one of the three existing regimes, or even create a tailor-made one, by signing a marriage contract.

Partnership of acquests

If you were married as of July 1, 1970, you’re automatically subject to the regime of partnership of acquests. This regime separates property into two categories: own property and acquired property. Own assets include:

• Everything you had in your possession before your marriage
• Property acquired as a replacement for your own property
• Bequests and donations received during your union
• Your clothing, personal papers and work instruments
• Certain pensions and allowances

Property acquired includes salaries, investment or work income as well as assets acquired mainly with this money. After a separation and divorce, each spouse retains their own property. With regard to property acquired, its value must be shared equally. It may be useful to call upon a legal professional to decide between and calculate the amount to be divided.

Separation of property

To be subject to this regime, you must do so through a marriage or civil union contract. The separation of property regime ensures independence for the spouses, since in the event of divorce, each leaves with all the property that belongs to them. This regime protects you from your partner’s financial difficulties, but can be disadvantageous for the economically weaker spouse.

Community of property

Rarer nowadays, the community property regime was the default matrimonial regime in Quebec until July 1, 1970. Under it, assets are divided into three categories: 

• Personal property, which includes property acquired before marriage, gifts and bequests as well as compensation.
• Community property, which includes property acquired during the marriage.
• The reserved property of the other spouse, generally the wife, which includes their salary and the goods purchased with it.

During marriage, a spouse, historically the man, manages the community property and his own property. The other spouse, historically the woman, manages her own property and the reserved property. In the event of separation, each retains their own property. However, the community property and the reserved property must be shared equally. The woman can choose to give up the community property and keep only the reserved property.

What about common-law spouses?

Common-law partners, that is to say couples who are not married or not in a civil union, don’t have the same rights and protection and must therefore regulate all aspects of their separation themselves. In theory, each spouse keeps their own property, regardless of whether they were acquired during the union or were used by the family.

If you can’t determine who owns the property, you’re considered to be co-owners. If you both contributed to the purchase of the property, you can agree on the percentage of each other’s share. Otherwise, you are 50% co-owners. You also need to agree on who will keep the asset. Whoever keeps it can, for example, pay financial compensation equivalent to the value of the share. You can also decide to sell the property and separate the income.

Some couples decide to sign a cohabitation agreement during their relationship. This document establishes the obligations of each person during their life together and the course of a possible separation. It must be respected in the event of rupture. Note that unless previously agreed, former common-law spouses are not entitled to alimony for themselves.

If you can’t agree on the division of your property, you can call a mediator. Otherwise, you can go to court. The latter may decide in particular on the owner of the property, its value, or order the payment of financial compensation.