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What To Do With Tfsas, Rrsps And Assets When Divorce Hits

When a long-term relationship ends, predictable routines vanish and emotional upheaval and stacks of paperwork often arrive at the same time. While emotional healing takes time and patience, so does re-establishing your finances. Taking practical steps sooner than later can protect your credit, help you maintain necessary resources throughout the transition and lay the foundation for rebuilding your financial life. Here are key considerations as you navigate through the uncertainty.

Identify where you stand financially

Start by creating a list of all of your assets, debts, bank and investment accounts, insurance policies, pensions and recurring bills. Note whose name is on each account, the current value of your assets, whether an asset or liability belonged to one person before your union and if any loans are co-signed. Download or copy recent statements to preserve easy access to the information.

Update your list on a monthly basis to capture all of the changes that occur during the transition. Ensuring that you have accurate facts can reduce anxiety and will make any legal proceedings easier.

Separate shared accounts and protect your credit

Take steps to protect yourself once you know where you stand with each account. It might be necessary to close joint accounts to remove your name. However, if you are not able to remove your name from a joint loan, line of credit, overdraft or credit card, document communication with your former spouse and consider agreeing on a temporary freeze for discretionary use until the legal matters are resolved.

You may want to inform your creditors about the changes in your circumstances because a separation or divorce only dissolves the personal relationship. Joint debts remain joint unless you renegotiate the credit agreement with the lender.

To protect your credit rating, request your free credit reports from Equifax and TransUnion to check for errors and any unexpected activity. Protecting your credit as much as possible will help with future rental verifications, employment checks and borrowing.

Seek legal, financial and emotional support

When navigating an unfamiliar situation, working with professionals will help ensure you receive the best possible guidance and support. Your team may consist of a family lawyer, a certified financial planner, an accountant and a non-profit credit counsellor if you need help with your debts or creating a budget.

Decisions made under stress can be unreliable, so it is equally important to recognize the significance of emotional support from trusted friends or family members. In addition, a therapist, peer group or coach can provide objective insight to help you stay focused on your long-term goals and avoid impulsive decisions.

Create a new household budget

When a single household divides into two, overall costs tend to rise. To outline a new budget based on your current reality, track your actual spending for at least a month to see where your money is going. This will help to identify new bills and routine expenses, as well as habits that could be adjusted to help preserve your lifestyle.

Once you know your expenses, build a budget that covers essential obligations first, such as housing, utilities, food, transportation, medical costs, debt payments and insurance. Then allocate amounts to building up your savings. Until your cash flow feels stable, be conservative with your budget and only include the income you can count on receiving consistently.

Rebuild emergency savings and prioritize easy access to the money

After a relationship ends, an emergency account is especially important so that you can manage unforeseen expenses or a sudden income reduction on your own. Aim to accumulate a cushion that covers three to six months of routine expenses. If that feels impossible, start small with an automatic transfer of whatever you can afford each pay cheque.

At this stage, being able to quickly access your money, such as in a high interest savings account, is more important than focusing on investment returns. Readily available cash helps you avoid expensive borrowing and gives you flexibility when opportunities or unexpected expenses arise.

Make strategic choices to safeguard your future with settlements and transfers

If a settlement, division of assets or property adjustment is part of your separation or divorce agreement, treat those lump sums of money as strategic resources and consider splitting them into short-term savings, debt reduction and longer term savings.

Before making an irreversible decision such as selling a home or cashing in a retirement account, seek independent advice from a financial adviser or tax professional who understands the rules for registered retirement savings plans (RRSPs) , tax-free savings accounts (TFSAs) , pensions and asset division when a spousal relationship ends. Professional guidance can prevent costly mistakes and help you safeguard what you may need to care for your children and provide for their futures.

Update beneficiaries, legal documents and insurance

After a relationship ends, it is important to update the beneficiary designations on your life insurance policy, workplace pension and benefits plans, RRSPs and TFSAs. Review and update your will, power of attorney, health care directives and emergency contacts, if needed. Confirm that your homeowner or tenant insurance reflects your current living situation and that your disability and critical illness coverage are sufficient for your individual needs. Failing to update beneficiaries is a common oversight that can produce unintended consequences later.

Rebuild your financial identity and future goals

Once you have taken care of the essentials and protected your immediate finances for yourself and your children, if you have any, it is time to start rebuilding your own financial identity. Open new accounts in your name and work on establishing or strengthening your credit with manageable borrowing options. Take a fresh look at your retirement plans, career path and any dreams for education or relocation.

It’s important to define what financial security means to you because your perspective may have shifted. Over time, many people discover that starting over helps them better understand their priorities and develop stronger financial habits than before.

Mary Castillo is a Saskatoon-based credit counsellor at Credit Counselling Society, a non-profit organization that has helped Canadians manage debt since 1996.

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