In divorce, the real value of a settlement is not what you get in the agreement, but what's left over after you pay Revenue Canada their share. Its hard to think taxes when the emotions are running high, but divorcing spouses really must consider the wide range of financial implications and tax planning issues that go with the lump sums of assets coming your way.
On the surface the math seems simple enough… you take this and I’ll take that. But not everything that seemingly has the same value on paper has the same cash value. Splitting and equalizing assets and investments can be very challenging from a tax, retirement, or debt management point of view. A smart divorce is all about tax acumen, smart money decisions and savvy financial planning. Too many people let wisdom fall through the cracks.
Remember, every time you take money from an investment or from a business, or from real estate that is not your home, or from a RRSP, etc. - you are charged tax and this is no different even when it’s a divorce. Depending on how the money is coming into your life this year… that could mean that those RRSPs that appear on paper to have a value of $100,000 may only be worth $50,000 in cash after Revenue Canada is finished.
And its not just about the obvious tax issues. Receiving more in spousal support may seem like the simple answer… until you realize that this support is actually taxable income and you are now being raised to a higher tax bracket. Not only are you now being taxed at a higher rate, but you may be losing certain benefits like the Canada Child Benefits or your HST credits. As well, if too much of your income comes from support you will not qualify for a mortgage on your own or your college aged children may not qualify for OSAP.
Introducing the CDFA (a Certified Divorce Financial Analyst). A CDFA is the specially trained financial professional who understands the implications of divorce, money and taxes. A CDFA doesn’t assume every asset must be split down the middle and understands that not all assets are created equal. They will look at your situation in the context of how to divide the whole cake, not just each individual piece.
If your aim is to “survive” your divorce, you’re aiming too low. You should not only want to untangle your life, you should want to create a solid financial foundation on which you can build a new life. When you divide your assets with financial savvy and money smarts you won’t be second guessing yourself or dwelling on “Should I have…” Every step you take is one you can take with confidence.