"Housing woes, higher rates present big challenges for divorcing couples"/ "Getting divorced? Here's how to prepare your finances and protect your assets"

Jun. 17, 2022 "Housing woes, higher rates present big challenges for divorcing couples": Today I found this article by Michelle Zadikian on BNN Bloomberg:

The swift decline in Canadian home prices, rising borrowing rates and the skyrocketing cost of living are presenting challenges for many Canadians, but couples going through a divorce are being hit particularly hard by these new financial realities, according to experts.

Aside from the mental and emotional toll a divorce can take on a family, 

those looking to sell their matrimonial home 

or buy out their spouse from the property 

are finding out that the current market conditions are increasingly becoming unfavourable for them.

“In a situation where the parties are jointly on title or have a joint interest in the property, one possible solution that we could normally discuss is, ‘Hey, are either of you interested in maintaining that property [and] buying the other party out of their interest?’” said Kevin Caspersz, senior associate lawyer at Shulman & Partners LLP, told BNN Bloomberg in an interview.

“The party purchasing the other party's interest should go and get some sort of preapproved financing and demonstrate that they have the financial ability to do that. 

With increased interest rates and the stress tests that are implemented now, it's become a lot harder for that option.”

He said getting rid of that choice could force a couple to unwillingly sell the property on the open market at a time when home prices are sliding.

The latest Canadian Real Estate Association (CREA) data showed national home prices fell for a second straight month in May as the cost of borrowing jumped and buyers continued to sit on the sidelines.

The benchmark price of a home fell 0.8 per cent to $822,900 in the month, with several major cities in Ontario reporting the biggest drops, the CREA data showed.

Typically, the easiest option divorcing couples can opt for is to list the home for sale and divide the net proceeds among the two parties, Caspersz said. 

But some couples may want to keep the home in the family for a variety of reasons including maintaining a certain lifestyle for the children.

“It becomes a very, very different circumstance, where now you have two households, and now you have to use the same amount of income for two separate households,” he said.

“And that can really change the lifestyle [and] the way those finances are used between those two residences as compared to when it was one household and one financial unit. 

So you're not wrong when you say that the financial impact can be significant, if not the most significant impact when a party separates or divorces.”

DELAYING DIVORCE

While Caspersz said he doesn’t have specific examples, he said it’s “very possible” that some couples are delaying divorce to wait for the housing market to rebound.

“Perhaps they're in a circumstance that's not extremely confrontational or high conflict and they're holding on to their property in terms of maximizing their return -- very possible. 

Also, there are circumstances where parties continue to reside in what we call ‘separate and apart’ but in the same residence. So they're technically separated but they're still living in the same home because of the financial impact,” he said.

The thought of having to survive on one income in this rapidly-changing economy can also be very intimidating for couples thinking about splitting up, according to one real estate professional.

“I’ve spoken to people -- several people -- in the last little while who have been contemplating divorce and they're definitely intimidated by the financial aspects, not just from a housing perspective, but the overall cost of living,” said Cailey Heaps, president and chief executive officer of the Toronto-based Heaps Estrin Real Estate Team, in an interview. 

“What will they net on their house sale? 

How do they ever get back into the real estate market? 

There's just so much happening in the economy that I think it's creating more concern about the financial aspects of divorce than we've historically seen.”

She said when divorcing couples want to sell their home, she tries to determine what their main motivator is: are they looking to sell quickly or are they willing to wait in order to get the highest selling price.

If the couple has a tight timeline, she said her strategy in today’s housing market would be to price the property attractively to generate offers.

“I think the other thing for divorcing couples is if they want to sort of wait it out and wait for the market to fully return to its peak. You know, how long will that take? No one really knows but I expect it will probably not happen before 2023 or later,” she said.

She said one option for divorcing couples is to rent a smaller secondary apartment so children can remain in the matrimonial home while spouses take turns living in the main home.

MARRIAGE CONTRACTS

As a lawyer, Caspersz said his best advice, ironically, is for couples to sort out the terms of a hypothetical separation when they’re on good terms and document it in a marriage contract.

A marriage contract is a formal agreement a couple can enter into before they get married which details how property and finances will be divided should the two parties separate.

“You can talk about things and there's no conflict or minimal conflict. That's the time to say -- and yet, the worst time to say, ‘Hey, what would happen if we separated?’” he said.

“[If] you can never have to rely on that contract, that's wonderful, right? You stay together. But if you do separate, simply pull out that contract.”

Housing woes, higher rates present big challenges for divorcing couples - BNN Bloomberg

Mar. 21, 2023 "Getting divorced? Here's how to prepare your finances and protect your assets": Today I found this article by Ida Khajadourian on the Financial Post:

More than 40 per cent of marriages in Canada end in divorce, which can be an

emotionally charged life transition since 

your lifestyle, 

housing 

and financial goals 

can all be upended,

 making the process of separating finances onerous and exacerbating.

Separating emotions from critical financial decisions can be difficult at the best of times, but is especially complicated when working through a divorce. 

Working with a wealth adviser can add an objective lens when navigating your uncoupling and can help you better plan for financial security in the future.

Gathering resources

Before you begin the divorce process, 

consider the shared assets 

and debt accumulated 

during the marriage that will need to be divided during the separation. 

For example, if a couple took on a mortgage to purchase a matrimonial home, the home’s value and the debt taken on to purchase the property will need to be split between the couple regardless of who paid for it.

Other financial considerations may include the appreciation in investment portfolios, other real estate properties, pension assets and the value of a business. 

Depending on how they were treated during marriage, gifts and inheritances may also need to be divided.

The division of art and antiquities, precious metals, the cash value of insurance policies and even loyalty reward programs such as Air Miles are sometimes overlooked and will form part of your net family property.

While not on the balance sheet, other considerations should include the potential impact to your health insurance coverage if you are transitioning out of a marriage and were dependent on your spouse for this coverage.

Protecting your assets in case of divorce

Although only eight per cent of Canadians claimed to have signed prenuptial agreements in 2017, according to an Ipsos survey, the trend is shifting, with an increasing number of young adults, especially women, requesting prenups to cover property protection, spousal support and the division of assets in case of divorce.

Like any other contract, a prenuptial agreement can benefit couples by encouraging 

early communication, 

potentially avoiding costly legal disputes,

reducing stress and uncertainty 

and increasing the chances of a clean separation of assets later on.

Although prenups cannot cover everything, they can help simplify the divorce process and alleviate some of the financial and emotional burdens.

If you do not have a prenup, keeping thorough records of the assets you owned before marriage and keeping gifts and inheritances separate from marital property are simple ways to protect your finances. 

For more sophisticated methods of protecting assets, life insurance, corporations and trusts may also be used.

Some couples may forgo marriage entirely and choose a common-law arrangement to reduce financial risks since the law treats common law differently than marriage.

For example, depending on the specific laws of the jurisdiction in which the couple resides, the partner who purchased the home could be considered the sole owner of the property.

 However, if the other partner made contributions towards the purchase or maintenance of the home, such as paying bills or making improvements, they may be entitled to a portion of the property’s value upon separation.

Aligning child-care responsibilities

One of the most common concerns for couples during a divorce is their children, and it is critical to consider their emotional and financial well-being.

Determining child support costs in Canada is mostly formulaic and is calculated by considering each partner’s annual gross income, the number of children in the family and custodial arrangements. Other considerations include the cost of child care and extraordinary expenses such as private school and extracurricular activities.

Calculating spousal support costs is more complex and considers a number of factors such as the length of the marriage, ages of the spouses, gross income, financial needs of each spouse, whether there are children and child support, and more.

A couple should find solutions that best suit their family’s circumstances when constructing separation and parenting agreements, keeping in mind factors such as safeguarding the familial home for their kids, considering the location of their new homes and workplaces, insurance policies for support payments, and their custodial and visitation rights.

Transitioning from family income to a single income

The financial and lifestyle changes that result from moving to a single-income household can be overwhelming, but working with a wealth adviser can prepare you to 

manage the expenses attached to the process, 

make informed decisions about dividing assets 

and devise a new financial plan based on your revised priorities and life goals.

Whether it is providing recommendations for lawyers or mediators, 

checklists and budgeting worksheets, 

or even sample parenting and separation agreements,

wealth advisers can provide valuable tools and information needed to consider your next steps. 

They can also work with your other advisers such as accountants to review the impacts of a divorce from a tax perspective.

Beyond helping you work through any financial concerns, a trusted adviser can provide much-needed emotional support during these tumultuous times and guide clients thoughtfully in the right direction.

This may mean encouraging a couple 

to attend mediation rather than going through a costly legal battle 

and providing support and resources for children, 

including budgeting for counselling to help support the family’s mental health during this difficult transition.

Ultimately, it is important to remember that you are not alone in this process 

and the more you lean on the support systems around you, 

the lighter the burden will feel.

Ida Khajadourian is a portfolio manager and investment advisor at Richardson Wealth. This article is not intended to provide legal advice.

Getting divorced? How to prepare your finances and protect your assets | Financial Post