Planning for your children’s future after Divorce
Finances and the well-being of your children are two of the most common concerns during a divorce. Add these two together and you have something to really keep you up at night. Will we be able to maintain the same lifestyle our kids are accustomed to? How will we be able to help with post-secondary expenses? If they need help buying their first house, will we be able to assist? These are questions many parents ask themselves — and their Chartered Financial Divorce Specialist can help.
My previous post “Rebuilding Personal Finances After a Grey Divorce” talks about how to deal with finances after a divorce later in life, but for those divorcing with kids at home, there are many other factors to consider. Whenever my clients are navigating a separation while raising children, we start with the basics: What are your expenses currently and what changes do you anticipate in the future? We establish a financial foundation to build a plan and provide some peace of mind.
Planning finances during a separation
Families need to consider at the start of the separation process how they will finance the cost of the actual divorce process. Money is usually tight, new routines haven’t been established yet, and divorce expenses can be crippling. Some options to consider would be a separate line of credit that can then be paid off with the sale of the house or realization of an equalization payment, accessing savings or investments, or setting up a payment plan.
Child and spousal support
In determining child and spousal support, we start by looking at the income of each party, and determine if there is an entitlement for spousal support. By helping to determine what special expenses a family has currently and may have in the future, we can incorporate these into our support discussions. Next, by working with the Spousal Support Advisory Guidelines, we determine any benefits or tax credits available to the family. The guidelines provide a range for spousal support, that is then negotiated between parties and their lawyers, as well as the amount of child support payable based on the parties’ income. This helps determine what proportion of expenses each spouse will pay. We can then have the discussion around what makes sense for the family from both a needs and affordability standpoint. The priority is to make sure the children have their needs covered, and through open and honest communication, we are often able to see ways to achieve this without putting unnecessary pressure on either spouse.
Section 7 and other expenses
Extra-curriculars, gifts, holidays, education — these are the kinds of expenses that Collaborative Practice can address up front, rather than leaving parents to figure out later when they could potentially become an issue. Pro-actively thinking about future expenses helps foster productive financial discussions between the co-parents and allows them to make initial decisions with the support of their team, come to any necessary compromises, and ensure the resulting decisions are reflected in their agreement. The calculations we run for child and spousal support purposes address the sharing of extraordinary Section 7 expenses, like childcare, extra-curricular activities and post-secondary expenses.
Post-secondary education is expensive, so whenever I’m speaking with separating parents, I recommend a Registered Education Savings Plan (RESP). Lower income households can take advantage of the Canada Learning Bond and everyone can take advantage of the Canada Education Savings Grant to add additional savings. We facilitate the conversation to determine how co-parents can fund an RESP and what expectations they have for the child’s contribution to post-secondary expenses so they can incorporate these into their agreement.
Consideration should also be given to how parents are going to address these needs in the future. Typically that involves sharing tax returns to determine if any adjustments to child support payments and special expenses sharing are required. Often a Financial Collaborative Professional will be engaged on an ongoing basis to help the separated couple address these items in an unbiased manner.
How Collaborative Financial Professionals help
Since Collaborative Practice uses a team-based approach, a financial neutral typically assists in the entire process. The financial role goes well beyond collecting the financial disclosure and preparing financial statements. We help clients with budgeting and cash flow analysis, future lifestyle projections, resources, and referrals to other professionals as needed. Many Chartered Financial Divorce Specialists have backgrounds as financial planners, so we educate clients along the way and make sure they are on solid footing to start the next phase of their lives.
Laying the groundwork for a collaborative co-parenting relationship starts during separation . If you are able to have productive and transparent conversations about your children and finances during your divorce, with the help of the collaborative professionals on your team, you are starting from a great place. Separating couples with children will never truly disconnect from each other, so finding a peaceful way forward is vital.
Terri McDougall is a Chartered Financial Divorce Specialist (CFDS) and Personal Financial Planner (PFP). Prior to working exclusively with separating and divorcing clients, she spent over 25 years in the Private Banking and Wealth Management fields. She helps her clients increase their comfort level with regards to financial planning, budgeting, insurance, and investments. Terri maintains a wide network of like-minded professionals to ensure all her clients’ financial needs are addressed in creating an integrated plan for their personal situations.