Separating is a big deal. After finally catching their breath, people often wonder, "What's going to happen to my finances?"
This is one of the questions that Tarina asked herself when she was going through a separation. Mother of a young child, she decided to break up with her partner after having invested in a new house and taking maternity leave. As a result, her bank account was in a precarious state. "Money scared me when I left my partner," she says. "[...] In reality, it was just a logistical obstacle, not a good enough reason to stay."
Find out how to get back on track, one step at a time, through Tarina's story and our practical advice.
"If I could give one piece of advice to someone going through this right now, it would be to go for it. There are plenty of tools and resources to help, even if at first everything seems confusing or overwhelming. Once you've taken that first step, the rest becomes much clearer."
— Tarina
01 Taking stock of your financial situation
Before making any decisions, you need a clear picture of your finances. Starting with the basics can often be the most reassuring.
First things first
- Contact your financial institution to close, separate, or convert your joint accounts
- Open a personal bank account (if you haven't already)
- Move automatic deposits and withdrawals to your new personal account
- Change your passwords, PINs, and security questions
- Check access to your email
- Note the date of your separation (required for some paperwork)
- Make a list of your accounts and debts
List your assets and accounts
Gather information on what you own, e.g., bank accounts, TFSAs, RRSPs, non-registered investments, employer pension plan, home value, vehicle, children's RESPs, etc.
Don't try to analyze everything right away. The important thing at this stage is just to know what you have. Keep your tax returns from the past few years handy, too—you'll need them.
Review your debts
Mortgages, lines of credit, credit cards, co-signed loans ... make a list of what's in your name, your ex-partner's name, and in both of your names. This is essential for determining what should be shared or separated.
Typically, you are not responsible for your ex-partner's personal debts. However, if you have co-signed a loan or hold a joint product (credit card, line of credit), you may be considered liable for the balance even after separating.
02 Drawing up a new budget that makes sense
Going from two incomes to one is a major adjustment. It doesn't have to be perfect. Just stepping back and taking a look at your situation is already a lot.
Understand your new cost of living
"The first thing I did was make a real budget and evaluate the cash I had."
— Tarina
After a separation, some expenses will go up (housing, insurance), while others may go down. Do the following for one month:
- Keep track of all cash outflow
- Identify what is most important and what can be reviewed later
- Target one or two easy-to-lower expenses if needed (telephone and Internet, subscriptions, insurance)
Alimony and child support: How they may affect your finances
After separating, you may give or receive financial support. There are two types of support, and they don't work in the same way.
Child support
Child support is paid by one parent to the other to cover their children's needs (housing, food, clothing, activities, etc.). In Québec, this amount is determined based on the income of both parents, how custody is split, and the number of children in the family. From a tax standpoint, things are simple: The person who receives child support is not required to declare it, and the person who pays child support is not allowed to deduct it.
The Québec government provides an online calculation tool you can use to estimate child support payments.
Spousal support
This type of alimony is designed to help the other person maintain a reasonable standard of living after separation. It is not automatic and must be provided for in a written agreement or court order. Unlike child support, the recipient will pay taxes on it, and the payer may deduct it from their own taxes.
Good to know
If an agreement does not clearly distinguish between these two types of support, the total amount will be treated as child support (non-taxable, non-deductible), which is just one more reason to have your agreement reviewed by a professional.
"Just making the decision to separate gave me an immense sense of control," Tarina recalls. "Then, going out to tour apartments and actually seeing the options available to me made the situation seem more real, but also more manageable. It turned something very emotional into doable steps."
03 Navigating tax changes
Going through a separation can also have implications for your tax credits, benefits, and tax returns. A good rule of thumb: act at the right time and avoid surprises.
Updating your marital status: When and how
You are considered "separated" after 90 consecutive days of living apart due to a breakdown in the relationship. Once this period has passed, your official separation date becomes the day you began living apart.
- Canada Revenue Agency: You must inform the Agency no later than the end of the month following your change in marital status.
- Revenu Québec: Contact the agency after 90 days to declare your change of status.
Credits and benefits to verify
- Credit for people living alone: To qualify, you must have occupied and maintained a dwelling in which you lived alone (or only with minor dependents or adult children in school) for the full year. If you separate midway through the year, this credit will typically not be available to you until the following year.
- Tax credit for childcare expenses: These rules may change depending on your new situation. Take a few minutes to read through the eligibility criteria for a clearer picture.
Family allowance: An adjustment that can make all the difference
This allowance is calculated based on a couple's income. After a separation, it will be recalculated according to your individual income, which could mean you receive a higher amount. Notify both the provincial and federal tax authorities to receive your entitlement and avoid overpaying taxes.
"We underestimate how many things there are to think about all at once. [...] They may seem like small details, but put together, the list gets long and complex," says Tarina. If all this sounds like a lot, that's normal. Don't panic and remember to take it one step at a time.
04 Reviewing your savings and investment strategies
In the past, you may have chosen your investments based on shared goals. Now's the time to refocus on your personal goals. Your priorities may have changed.
"This experience completely changed my perception of the importance of an emergency fund," said Tarina. "I'm a pretty big spender, and this separation has made me realize how essential it is to have cash available at all times. It's taught me to be more conscious and strategic with my money."
Re-examining your investor profile
Review your TFSAs, RRSPs, and non-registered accounts in light of your new reality: horizon, projects, risk tolerance, ability to save.
Before rethinking your strategy, make sure your accounts and withdrawals are in your name.
RRSPs: Useful guidelines
- Divorce (marriage or civil union): The money accumulated in an RRSP can be divided if it forms part of the family patrimony.
- Separation (common-law union): Each person keeps his or her own RRSP—no automatic division. Ex-common-law partners can, however, agree to split assets in a written agreement.
- Spousal RRSP: If one person contributed to the other spouse's spousal RRSP during the relationship, the accumulated amounts can be divided.
If you have questions, consult a professional. A neutral party can help you make informed decisions.
05 Rethinking your retirement strategy (at your own pace)
You probably built your retirement plan as a couple. While it should be adjusted eventually, you don't need to do it today.
Re-evaluating your retirement plan
Once your situation has stabilized a little, take time to review the following:
- Your target retirement age
- Your expected revenue
- Your priorities (stability, flexibility, plans)
Simulate going solo
With My Game Plan, our tool to plan your finances, you can visualize your overall financial situation without having to calculate everything by hand. It's simple, intuitive, and designed to guide you through any situation.
06 Making sure you're legally protected: Updating your documents
After a separation, it's also critical to make sure that certain documents reflect your new reality.
Updating your will and beneficiaries
Check the beneficiaries of your life insurance plan, RRSP, RRIF, and pension plans. This is a task we often put off, but one that can have serious consequences.
If you were married, divorce may automatically modify certain clauses of your will. Check with a notary.
Common-law union and marriage: Different protections
This is a critical point. A common-law union is not a marriage, so many legal protections do not automatically apply. For example, common-law partners are not entitled to any portion of the family patrimony or to receive support payments, unless otherwise agreed.
Find out about your rights based to your situation.
Review shared paperwork
Joint accounts, co-signed loans, powers of attorney, protection mandates, insurance (home, auto, group): Review everything calmly, one step at a time.
If you are covered under your ex-spouse's plan, you'll need to take out your own plan.
07 Getting proper guidance can make all the difference
During a separation, emotions run high. Having a neutral person in your corner to validate your financial decisions makes all the difference.
"I wish I'd consulted a professional sooner. It would have saved me a lot of stress and uncertainty."
— Tarina
- Mediation: Couples with dependent children are entitled to five hours of family mediation in Québec, free of charge, while couples without dependent children are entitled to three hours. This approach is always faster and less costly than going to court.
- Notary: Ideal professional for preparing a separation agreement, selling a house, or updating a will.
- Financial advisor: Neutral, objective, and unemotional ally who can help review your budget, investments, and retirement plan.
- Professional counsellor: Taking care of yourself also means giving yourself the energy and clarity needed to make the right financial decisions.
Regaining control, one step at a time
Rebuilding your financial life after separating can't be done overnight. That said, every little bit counts: opening an account, reviewing your budget, updating your beneficiaries, etc. Surround yourself with the right people and go at your own pace.
"Financial fear is real, but it should never be something that holds us back," concludes Tarina. "I want my daughter to grow up with the example of a healthy and fulfilling family model, whatever form that may take."
