For couples moving forward in their relationships who are looking to combine their finances, there is no shortage of advice online.
If you’re going through a breakup, however, and you’re looking to disentangle yourself from joint financial arrangements, advice can be harder to come by.
Ending a relationship is difficult enough without the financial turmoil that often comes with it. According to Karen Richardson, an associate planner with Spring Financial Planning, breakups can be made all the more complicated by the fact that most couples significantly combine their finances when they begin their lives together.
“More often than not, my experience has been that couples really combine their finances and make their decisions as a couple,” says Richardson. “They have joint investments and joint bank accounts.”
Regardless of whether you’re breaking up with your partner or simply decided to further separate your finances from your partner, we’ve asked two experts to walk us through the process of uncoupling the most common joint financial arrangements.
If you own a home together
Seeing as this is one of the largest purchases a couple will make together, it’s often the most difficult to split up. A mortgage that’s co-signed by two individuals is considered a joint asset.
Richardson explains that the easiest thing a couple can do in this situation is to sell the home.
This is a popular solution because a joint income is often what allowed the couple to purchase the home in the first place and it can often be too big a cost for one person to cover on their own.
If one person decides they want to stay in the home, they’ll have to buy the other person out. This solution is most common when there are children involved and one parent wants to stay in the home with their children.
When children are involved it’s not uncommon for one or both spouses to want to stay in the family home. This often involves buying out the other spouse and taking over the mortgage
“One of the biggest challenges is determining who stays and who goes,” explains Jason Heath, the managing director of Objective Financial Planners Inc.
“Particularly when children are involved it’s not uncommon for one or both spouses to want to stay in the family home,” he says. “This often involves buying out the other spouse and taking over the mortgage.”
In addition, you’ll need to notify your home insurance provider of the split so they can reevaluate your policy. You can do this by calling your agent or broker.
If you own a vehicle together
Similar to what happens with jointly owned homes, couples who own vehicles together will either have to sell the asset altogether or decide who gets to keep it. The partner who gets to keep it will have to buy the other partner out.
This process is less common than breaking a mortgage for a few reasons, Richardson explained.
For starters, a car is usually in one person’s name. She noted, however, that in big cities with ready access to public transit, many couples only have one car.
Secondly, this is a much smaller asset, so it may be financially easier for one partner to buy the other out.
If the ownership of your vehicle changes, the partner keeping the vehicle will need to notify your car insurance provider of this so they can reevaluate the policy. This partner may need to provide the insurance company with new proof of ownership if both partners were previously listed on the policy as drivers.
If you both contribute to an RRSP or TFSA
Unlike a mortgage or a vehicle, a registered savings account, such as an RRSP or TFSA, can only be registered in one person’s name. However, both couples can contribute to the same account. When a couple gets married, the account becomes a joint asset.
Due to tax ramifications, people can’t usually divide these accounts on their own, says Heath.
“The good thing about RRSPs and TFSAs is that they can’t be joint,” he says. “They’re always in one person’s name or the other. But that doesn’t mean that it belongs to you in the event that you split up with somebody.”
What normally takes place is a third party (a lawyer, mediator, etc.) will look at what you brought into the relationship and what you’re leaving the relationship with. Often, anything contributed since will be divided.
If you have a joint chequing account
Another common asset that often needs to be divided after a breakup is a joint chequing account.
Richardon stresses that you can’t just remove one person’s name from a joint bank account. Both people need to sign to close the account.
However, if there are conflicts in the relationship, sometimes one partner may refuse to agree to close it. This is where lawyers get involved.
If you have automatic payments coming out of a joint account, the couple or a third party will need to decide where those automatic withdrawals will need to be redistributed to. If there’s a remaining balance, it’s usually split 50-50.
If you share a credit card
Joint credit cards are another example of a financial arrangement, though they’re becoming less common, Heath says, as couples are getting married later in life with more assets under their respective belts.
There are still many reasons a couple might sign up for a joint credit card, however, and it can be difficult to determine who owes what if a relationship goes south.
Richardson states that even with joint credit cards, each partner will have a separate credit card number. Therefore, it’s still possible to see who spent what, though it may take the joint efforts of both spouses and a financial planner to go back several years to determine this.
In many jurisdictions, common law couples who break up won’t have the right to remain in the shared home
In cases where one partner is the cardholder and the other is an authorized user on the account, there’s good news and bad news. The good news is that the cardholder can cancel the authorized user’s access at any time. The bad news is that the cardholder is solely responsible for any debts incurred on the card. It is important to note that if the outstanding debt on the card is left unpaid, it may still impact the authorized card user’s credit if their access is not revoked. In some cases, the authorized user may be able to remove the account from their credit report to avoid this outcome.
Planning ahead is key
Heath warns that he’s seen this scenario over and over again; a couple separates and one persona winds up stuck with the debt of a former common law partner or spouse.
A prenup is a contract drawn up when a couple gets married that lists all your assets and labels them according to what belongs to whom, and puts a value beside them.
The document also lays out which of your assets are joint and which belonged to each person individually before they entered the marriage.
When it comes to common law spouses, things can be a little tricker, Heath explains because different provinces treat these relationships differently.
For the most part, he states, common law partnerships generally don’t have the same level of protection as married couples.
In many jurisdictions, common law couples who break up won’t have the right to remain in the shared home, unless they’re both owners, nor will they have equal rights to the assets acquired during the relationship.
In some provinces however, common law couples do have the right to spousal support, child support and in some cases CPP or pension credits.
Heath and Richardson both advise consulting with legal counsel to determine exactly what your rights are in any of these situations.
And lastly, to make the process as smooth as possible, both experts strongly advise obtaining a separation agreement from a financial advisor or lawyer as close to the end of the relationship as possible.