11 Financial Impacts of Divorce That Every Married Person Should Know

Posted on December 30, 2014 and updated December 30, 2014 in Life Insurance Canada News 7 min read
Financial Impact of Divorce

Everyone knows that divorce isn’t free. In fact, it can literally cost a fortune. Between lawyers and councillors, the cost of a second residence (likely for one of the parties involved) and liquidating assets, you can be in for a long and expensive ride. If you are absolutely certain that your marriage is over and divorce is your only option, these are the things that are going to impact your bank account, and what you should consider as you move forward.


1. The legal side of things. An uncontested divorce, that is one where both parties want out and no one is fighting over assets or children, costs on average $1,350. On the other side of the fence are contested divorces. These range anywhere from $7,000 to $75,000, with the average in Canada being about $12,000, according to the Canadian Lawyer’s 2011 Legal Fees Survey.

2. Costs and budget post-divorce. Whatever lifestyle you were living while married, don’t expect to maintain that same quality of life after the divorce. Regardless of spousal support, and whether you are male, female or the bread-winner, things are going to change. You will now be responsible for providing your own residence, residential costs (utilities/insurance), vehicle, and vehicle maintenance costs, food, clothing, medical costs – the works – out of your own pocket. Whether some or all of that is covered by your spousal support payments, you are not going to have the financial liquidity or freedom you once did, especially if you also have children to support on your new, single-income budget.

3. Disbursements and miscellaneous costs. Aside from the cost of your divorce lawyer, you will also be hit with any other costs they incur during the course of your divorce proceedings. This often includes the cost of financial audits, disbursements, any certificates needed that must be ordered, postage, time for phone calls, and a host of other random fees. This can significantly increase the price of your divorce, not to mention that these are things incurred by each party, for each lawyer – so really, you have to double all your costs.

4. Tax implications. If you have children, you will also need to decide who gets to claim that child (or who claim which child for multiple children), because you can’t both claim the tax break for the child. This is often dictated by who the child lives with the majority of the time.

5. Make a plan. Planning out your finances in advance is a good idea. You need an accurate picture of where you stand financially as well as what you can and cannot afford to do (or have happen).

6. Can you talk to your spouse? This is going to depend on the relationship you and your spouse have when it comes to the divorce. Are you on good terms? Is it amicable? Is one of you bitter, out for revenge or full of shame? All of these things can impact how the divorce goes and how long and expensive it gets. The more cordial you can both be, the easier things will be, although this is not always possible for every case.

7. Your debts. You don’t want to leave a marriage with half of the accumulated debt, which could include personal loans, vehicle loans and credit cards. It is in the best interest of both parties to resolve all these debts as quickly as possible, before the divorce. Imagine being on a single income all of a sudden, and having to be tethered to a massive debt. This can affect your credit and impact your ability to buy a new home or get approved for future loans in your name only.

8. Your assets. Sell and split what you can down the middle on your own. This will save you money on your lawyers. This may include stocks, land and/or vehicles. You should also split the money in any bank accounts you share, be it a chequing or savings accounts, and then move it to an account in your name only. However, do not sell your primary residence without talking to your lawyer first – also, do not move out of the primary residence without seeking your lawyers advice.

9. Don’t forget your bills. It’s easy to get caught up in the divorce process and forget that you have regular bills to pay. This may include student loans, fees for your child(ren)’s education, or simply staying on top of utility bills. Falling behind on these will only compound the cost of your overall divorce and result in further penalties or late fee. You also have to consider that your cost for things like insurance may go up after a divorce, as many insurers offer discounts to married couples. Furthermore, if you end up paying spousal support and don’t have life insurance, you will need to get some to cover those financial obligations if you do pass away.

10. Update your will. This will require the assistance of a lawyer, and therefore more money, but updating your will is an essential investment. As soon as your divorce is finalized, you’ll want to amend your will to exclude your spouse or otherwise modify your next of kin. If you forget to do this and the unthinkable happens, all your assets may revert back to your spouse instead of your children, or parents in the case of no children.

life insurance divorce

11. Divorce and life insurance. If a divorce is imminent, you need more than a lawyer. You also need to talk to your insurance provider.

If you are supporting your partner (alimony) or any children (child support) after the divorce, you will likely be required to have life insurance. Post-divorce, if you are in a supporting position, it is inferred that your ex-partner or child(ren) are dependent on your income. In fact, according to Section 34(4) of the Ontario Family Law Act, your obligation to provide support continues after your death.
Life insurance for the non-paying partner is not mandatory, but it is a very good idea. No matter how you feel about your ex-spouse, you want to ensure the best future for your children. If the non-paying spouse passes, the income they used for the child(ren)’s necessities is lost unless life insurance is in place.

If you have joint life insurance, this needs to become part of the proceedings. You will need to take into account who the beneficiary is, that both spouses are paying into the policy as planned, and what happens to the cash surrender value for universal or whole life policies. For example, what if one spouse borrows against that value? That will affect you. If you no longer wish to have joint life insurance after the divorce, you need a clear plan on how to dissolve or transfer the policy.

Divorce can cost thousands of dollars just for a lawyer, but beyond that there are many tertiary expenses and costs you need to consider. Divorce will be life-altering and impact your quality of life in ways you can’t even imagine yet. From a drop in social status, to the loss of friends, your life post-divorce will look very different from your married life – are you prepared for that? You need to take a close look at your current finances, and what those finances will look like after your spouse is out of the picture. Plan how you are going to tackle the divorce process, and if possible, discuss it with your spouse. An amicable divorce is in everyone’s best interest, so if you can manage it, your wallets and children (if involved) will be better for it.

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