What financial experts wish you knew about divorce

A man and woman sit on a couch. (Pexels)

Divorce is a major financial reset, yet also one of the worst times to make a lot of important decisions.

There are emotions, for sure, said Lena Keshysheva, founder of B.C.-based Sapling Financial Planning & Wellness. But there’s also sheer volume and exhaustion.

“While I encourage people to start thinking about the financial planning aspect of things, I also encourage people to wait on purchasing their life insurance policies, or to wait to change their investment advisers, or wait to purchase the new home until there’s clarity,” she said.

Those going through divorce eventually suffer from "decision-making burnout," she added.

Assemble a support network, including legal and financial expertise, and then go slow from there, Keshysheva said. Some decisions can be delayed or spaced out. The only critical error to avoid is trying to do it without legal help.

“People tend to try to save money and not have the legal advice,” Keshysheva said. “That’s a bad idea. Legal guidance is non-negotiable.”

There is often a learning curve on finances for one or both spouses, said Colin White, CEO of Verecan Capital Management in Halifax. It’s rare for both people in a marriage to have an equal hand in every aspect, he said.

“Everybody’s going to have to learn things that they maybe weren’t paying attention to, right?” White said.

“And it could go either way -- either member of the family could have taken over the dominant role and part of the finances that somebody else has to learn.”

Keshysheva noted it’s fairly common for one person to manage the household budget, while the other manages investments and long-term planning. This can create a sense of betrayal in the divorce if assets or debts were misrepresented, or accounts were emptied — “financial infidelity,” she explained.

Keshysheva finds sometimes people are willing to let go of some money issues. However, one aspect of divorce that is almost always contentious is the kids.

Divorce cases with custody battles are usually most expensive, she said.

“When it comes to your children, I think it’s more understandable that this is something harder to let go,” she said.

In terms of the emotional turmoil of a relationship breakdown, don’t bring that into the legal proceedings, White said — both sides lose.

“People going through divorce, it tends to be super emotional and there can be an urge to try to punish somebody, go through the process and punish them financially and make things difficult,” White said.

“That just backfires — always. A contentious divorce is going to cost a lot more legal fees, and very seldom, if ever, leads to a better outcome."

In other words: a therapist is cheaper than a lawyer.

“If you try to punish somebody during the process, lawyers are going to win,” he added. "Lawyers are going to be the ones that take all that money.”

The biggest mistake White sees in divorce cases, however, is not severing all financial ties when the marriage breaks up. Ex-couples might think it’s simpler to finish paying off a car together rather than refinancing, or manage the kids’ Registered Education Savings Plans jointly. But even in a relatively amicable split, White says this is a bad idea.

“We’ve run into situations where there’s a divorced couple and they have an RESP for their kids,” he said. “That means that there’s joint decision making going on. There’s disclosure of financial situations on account documentation. There’s all kinds of complications that come with that.”

If one or both of the partners remarry, the dynamic often changes, and there can be new animosity in the relationship. One ex-partner may fall on hard times and stop making car payments, which can impair the shared asset, White said.

“You’re setting yourself up to be financially attached to somebody you’ve chosen not to be married to,” he said.

“You both try to move on with your lives, and you still have this tie. If things become less amicable, or remarriage happens, circumstances change, somebody gets sick, somebody loses a job — if you’re financially tied to somebody, then that becomes your problem.”

Another common mistake? Consulting social media for advice, Keshysheva said.

It’s normal to reach out to social networks during an emotional and isolating time, she pointed out, but it’s dangerous to get financial advice from others, as everybody’s situation will be different.

“Often, the use of social media can be a powerful tool, but it’s so important to treat it carefully,” Keshysheva said.

Financial advice from social media users can be clouded by their own opinions, biases and personal experience, so "what that effectively does is it adds a lot more confusion, making an already stressful situation even more stressful.”

Social media posts have also been used in divorce cases to prove behaviour or document assets, according to media reports. It’s better to keep your social media clean and hire professionals to handle your legal and financial situation, Keshysheva said.

“We’re humans, we have a need to connect,” she said. “But don’t overuse it for advice, and don’t overshare.”

This report by The Canadian Press was first published Dec. 10, 2024.