Financial prepping if you're going to be single
Don't give up your house even if a louse lives in it. *Unless you're in danger*
One of the biggest financial challenges many people will face in their life is leaving a relationship, particularly if there are communal assets involved.
We’re read about pandemic separations and I’ve had several people reach out to me asking what they should do, expressing concerns about their credit score so they can afford a house, whether they should get rid of any debt in the relationship before they separate, etc.
So I went looking for the answers and asked a couple of advisors and planners, who were happy to talk to me off the record.
If you missed the first half of this topic where I spoke to a lawyer, you can find it here:
First, this is about amicable separations. If it’s contentious, please make sure you’re safe.
One of the first things you should do is organize your finances before the separation. Apart from the fact it’s always a good idea to know what you have, make and owe both as an individual and as a couple, you’ll have all the information you’ll need at your fingertips as you go through the process.
Here’s a good check list from the federal government.
Another action is to talk to a financial planner. One planner said that if it’s an amicable separation, it might be easier to have that conversation with a neutral third party. They can help you figure out what you’re trying to accomplish.
“Are they looking to get advice on debt? Are they looking to get advice on assets? Are they looking to get advice on cash flow?,” says the planner. “For me, when I have a conversation with clients like that, I would ask what they're trying to accomplish and then tailor my questions to that.”
Some questions include building or rebuilding credit scores. Perhaps finances were blended for several years and the individuals are wondering how credit scores would work once they’re separated. In that situation, the planner suggested that they should talk to their bank and credit card company “because it would depend on a few things, were they ever the lead on the mortgage, property, assets or credit cards?”
If there’s property involved, the planner said that it’s also important to have the conversation about what’s going to happen to the family home. “Are you going to sell it? Are you going to rent it? Is your partner going to buy it out from you? Are they going to pay you fair market share for it?” says the planner. “That’s where speaking to a financial planner and going through that together can help.”
The planner had one last piece of advice which was to have an emergency fund. You know how much I like emergency funds. They can help you pay for time with a lawyer, a financial planner or your first and last month’s rent when that time comes.
This week’s readings:
By me. Five smart ways to transfer wealth to your children, grandchildren (Canadian Family Offices)
A friend sent this to me and I went, “Yup, I’ve heard of vex money.” (I come from the Caribbean) What Does Vex Money do to Love? (New York Times)
How you can help clients of all ages combat today's still-rising inflation? (wealthprofessional.ca)
You know I’ll be writing a piece on this. The singles tax is evolving in the age of inflation, and it means your married friends are probably 9x richer than you (fortune.com, paywall)
The Toll of Inflation: Soaring prices has four-in-five Canadians pinching pennies (angusreid.org)