Divorce is a traumatic event, and it completely changes the lives of those involved. Due to the fact that marriage is considered a legal contract, divorce can result in a protracted fight over finances. This has serious ramifications on the retirement plans of both parties, in particular when a member of a household earned more than the other.
Retirement Savings Plans
Investments in registered retirement savings plans (RRSPs) are “considered family property to be divided 50-50 in a legal separation or divorce.” That can have a significant impact on how you plan for your retirement following a divorce. Having your future financial resources dramatically reduced might mean a different retirement lifestyle than you’d anticipated. Or you could find yourself scrambling to make higher contributions in an attempt to restore the value of your RRSP.
Changing Plans Require a Change in Behaviour
One of the biggest changes post-divorce could be your income. Your new single lifestyle is unlikely to be as affluent as it was before the split. A reduction in overall income and a relative increase in the cost of living means that you might be forced to make some difficult decisions in order to keep your spending and lifestyle habits in check.
The first step is to draw up a budget according to your new financial situation. Outlining all of your typical expenses, including housing, food, transportation, and disposable income, allows you to calculate how much you spend on a monthly basis.
After calculating your expected monthly expenditures, compare that to your new monthly income. If you’re in a deficit — spending more than your income — look for places to trim costs. This way you can achieve financial stability.
After you get your month-to-month finances organized, ensure that your retirement won’t be fraught with uncertainty. Following the divorce settlement, determine the value of your RRSP, tax-free savings account, Canada Savings Bonds, and other investments. This will give you a clear picture of your current financial state and help you set realistic targets to achieve your retirement needs.
Are You Facing a Divorce and Worried about Your Financial Future?
At Galbraith Family Law, we work to support your needs during one of the most difficult times of your life. Divorce is never pleasant, but that doesn’t mean you need to spend the rest of your life dealing with the consequences.
If you are concerned about getting divorced after retirement, get in touch with us, and we’ll discuss how we can achieve the most positive resolution for everyone.