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March 10, 2021

How to handle financial challenges in a relationship

Couples don’t always talk about money. If you are the only one in the relationship tracking your spending, paying down a credit card balance or putting money aside for the mortgage down payment, it can seem like thankless work.

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How to handle financial challenges in a relationship

Two women holding bills looking at a computer

Couples don’t always talk about money. If you are the only one in the relationship tracking your spending, paying down a credit card balance or putting money aside for the mortgage down payment, it can seem like thankless work. And it likely means that you and your spouse or partner aren’t always transparent when it comes to issues like your debt load, spending habits and long-term goals. People are sometimes surprised that their partner doesn’t share the same financial habits and goals as they do. Talking about money isn’t always easy, but the better you understand each other’s financial habits and preferences, the more prepared you’ll be to face the financial challenges that life brings.

In this episode of the BDO Financial Wellness Podcast, we are joined by BDO Licensed Insolvency Trustees Jennifer McCracken and Michael Comrie. To learn more about our conversation, read the full transcript below.

Financial Wellness Podcast Transcript

Tera:

Hello, this is the BDO Financial Wellness Podcast, and I’m your host, Tera Beljo. And I want to thank you for joining us today, because we are going to discuss love and money. Let’s be honest, being in a committed relationship doesn’t guarantee that you and your spouse or partner are always going to agree on how to manage your finances. Maybe you’re a saver and your partner is a spender or your spouse hates carrying debt while you aren’t that worried about the balance on your credit card. I know I’m in that department. Learning how to communicate about money in a relationship isn’t always easy, but it is possible. And when couples face serious issues like overwhelming debt, or relationship breakdown, a healthy money relationship can be even more important. My guests in this episode are BDO Licensed Insolvency Trustees, Michael Comrie and Jennifer McCracken.

We have a great discussion about couples and money, including how to keep the lines of communication open and how to work through financial challenges in a healthy way. And for couples struggling with debt, Michael and Jennifer answer common questions asked by couples who are considering a consumer proposal or bankruptcy.

Welcome, Michael and Jennifer. It is very nice to have you both here today. So, we’re just going to jump right in. For couples who might be struggling to communicate about money, what advice do you have for building a healthy money relationship? Jennifer?

Make financial transparency a relationship goal.

Jennifer McCracken:

I always stress the fact that communication is really key in your relationship, and finances can cause a wedge in a relationship. So, it’s very important to have those financial dates, be on the same page, share your income. What are the household expenses? What are our financial goals? What’s the short- term, what’s the long-term? Acknowledge that people have different financial behaviours in a relationship. Maybe somebody saves more. Maybe someone’s a bit more of a spender.

You want to get on the same page, have those common goals and go back and visit them. It’s not something you do once a year. It’s something you have to look at regularly in your relationship and also assess inequity. There are changes, there are job losses. You know, we increase expenses at times. With COVID there’s the unexpected. So being on that same page and working together, the main piece there is the communication piece. And so that’s the first thing I start with, with my clients.

Tera:

Now, what would you say is a good timing to have these meetings, Michael? Like how often should people be sitting down and talking?

Michael Comrie:

Well, I suppose it depends on the level of communication the couple might already have established. I often meet with people and it’s very common where one member of the relationship is responsible for all the budgeting and all the financing and financial decisions. And ultimately, they’re not really having a conversation at all on any level. So, for those people, I would suggest they get into the habit of conversations at least a once a month, but potentially more than that. And the reason I say once a month is because I do encourage my clients, whether they’re in a relationship or not to keep track of their income and expenses on a monthly basis.

And so, having (as Jennifer had said) just open, clear and honest communication about where the budget’s at, how it’s being planned, who’s responsible for managing the bills or is it a shared task. And unless you’re having regular conversations about that, one partner’s going to potentially feel anxious or overwhelmed. And just by having the conversation, it removes a lot of that pressure and just that overwhelming feeling. So at least on a monthly basis, but potentially more than that, if it works and they’re comfortable with it.

Be open and honest about debt problems and other financial challenges.

Tera:

I wish I could remember who said this to me, because I would give them credit, but that a budget is not a set it and forget it. It’s a living document. It’s something that you have to keep revisiting because there’s going to be things like Amazon purchases that pop up that you may not have necessarily budgeted for and need to make some adjustments. So, what money issues should couples get out in the open before they move in together or get married? Michael?

Michael Comrie:

So, for me, there are the three main pillars you want to talk about if you’re comfortable with it. And I think you should be, if you’re thinking about moving in together or getting married. You should talk about your debt levels; you should talk about your income levels and you should ultimately talk about what your financial goals are. So, maybe one person has a very developed ambitious initiative to purchase a home within a few years, and the only way to get there is to create a deposit or a down payment to do that and they have very specific strategy to get there. And if the other person’s not on board or they have different financial goals, that’s going to force certain blow-ups somewhere down the line. So, if you’re moving in together or getting married, really the implication there is you’re going to be sharing finances.

And so, you should be aware of income levels and who can cover what expenses. Because sometimes it’s not equal output, but equal effort that matters most in feeling that the relationship’s balanced and shared, and the responsibilities are being managed by both parties. So, for me, those are the three main areas. But again, it really depends on talking about finances and debt. It’s a thorny issue. And so, you’ve got to be comfortable with it. But if you are, I would say those are at least the major three pillars or elements that should be discussed at the outset.

Tera:

So, if you’re comfortable enough sharing a bathroom, you should be comfortable enough to talk about your finances?

Michael Comrie:

And say, some people get that door wide open. So, you should really be comfortable with it.

Tera:

Jennifer, do you have anything to add to that?

Jennifer McCracken:

No, I think that’s great what Mike is talking about. And the thing to keep in mind is that, some people are coming with financial baggage and maybe they have not been as open with their partner. Some people feel that they can’t be open because maybe they’ll lose the relationship, if they’re dating somebody that is really financially prudent and talks about saving and they’ve been secretly carrying levels of debt.

I would encourage folks that, keeping secrets and not being open and honest when you’re taking that step with somebody is only going to create bigger problems. So, you address that issue now and be open and honest and accept whatever embarrassment you may have about what has been caused and work towards a solution together. This could be one of the first major issues you have in your relationship.

And it becomes a bit of a test in terms of, is this going to work longer term? So, that’s the other piece that I would encourage. Anybody that’s taking that step to really think through is that, don’t keep secrets, be open and honest about it, and it can be a good test for you to see if this relationship is something that will last long-term.

Tera:

And also, to that whole shame thing should be, don’t be judgmental when you’re on the receiving end of it. Is there anything else you wanted to add Michael to that?

Michael Comrie:

Oh, just to carry on with that same point. I would just add that if you are keeping a secret, it’s not going to get better over time. And eventually when that information gets revealed, if it’s many months or years down the line, it’s only going to exacerbate the problem and make it that much more difficult to deal with. And at that point, you might now have a kid or there might be other complications. And now, your failure to disclose, or to be honest about your situation is going to cause a whole world of hurt that had you just been upfront about that information from the get-go, likely would have been avoided.

Tera:

Exactly. So, Michael, when couples sit down with you during that first meeting to discuss their debt problems, what are some of the communication or money management challenges they’re typically experiencing?

Michael Comrie:

So, well again, if they’ve been honest about their debt levels and their income levels, then that’s a great place to start. Often, I find that I’ll be sitting with a couple or these days doing a virtual consultation, and one of them will admit to having a liability that the other person had no knowledge of, and right there and then, you’ve got a stumbling block to moving forward. The other issues I look at is trying to figure out, and this is very common, one partner will say, “Oh, I have no idea. I get paid. I put my money in the account and my partner handles the rest.” Maybe that works for them, but in my experience, that’s not the best way forward. It’s better that those tasks be shared or split or if not, at least there’s a conversation about, here’s where we’re at, we met our budget this month, or we didn’t. And, it really comes down to one person might be a saver vs a spender or, might be inclined to keep secrets. And often I find that that’s a major issue.

So, I do encourage them to be upfront and honest about that situation and sort it to define for themselves who’s better at what tasks and maybe that person might be more responsible. Or if they’re both okay at saving, then perhaps they split those tasks. But I do find if there is a large imbalance of the responsibilities of handling the finances, it really does wear down on the one individual. And it’s very difficult to manage two streams of income and potentially two streams of debt and try to make sense of where the money’s going. And you’re handling that all alone while likely also still working or managing a family. And often if you’re not being honest about your personality types or the finances, or who’s better at what you’re going to have common, frequent, ongoing arguments. Whereas if you address those at the outset, you’re likely to avoid those types of frictions.

Create a budget that works for both partners.

Tera:

Jennifer, do you have any tips for budgeting as a couple? Because, not every couple is making the same amount of money, but the expenses are coming out of the house. So, is it directly, if it’s $100, we each pay $50? Is there a formula or tips or some advice that you can give to couples as they sit down and talk about these things?

Jennifer McCracken:

Well, I do think that the percentage of the expenses that one covers in a household should be commensurate to the income. So, the way you can do that is you basically set out what are all the inflows. What’s the money coming in on a monthly basis? You could have a child benefit amount. You could have other sources of income that are going to assist with meeting your financial needs.

So, you’re going to want to know monthly (generally) what the inflows are. You’re going to break down, what are the needs vs wants. What are our fixed expenses? When do they get paid? There’s a paycheque planner system where you could tie those to pay dates and say, this spouse covers this one and pays it on this date. And then on the discretionary side, which is, I think where a lot of people run into problems, you also would have a plan in place to say, okay, honey, I will be doing the grocery shopping. This is what I plan to spend monthly. And so, you basically build out the household budget, have regard to what is the income of this spouse and that spouse, what is the other income, and put a plan in place. What you’d want to avoid is…you have the issue that Mike was hitting on, where one spouse or one partner could have the responsibility for the work and ensuring it’s all getting done.

But the other issue you can have is that there’s a spouse that has the responsibility also for paying more of the expenses. And that can cause problems in a relationship, a feeling of resentment, a feeling like, this the spouse here has so much more money to spend. Why isn’t he or she contributing more? That’s why you build that plan in place so that there are equities, and there’s fairness with it. And then it avoids situations where spouses are racking up debt in their own name, secretly because maybe they’re not able to manage their expenses on their line, on their side of the budget.

And so, they go, “Well, I’ll just get this payday loan, or I’ll just use this to cover this one time, but it won’t happen next month.” And before you know it, they’ve incurred a lot of debt secretly. So certainly, on the budgeting, again, it goes back to the piece with communication and to being fair to say, “Look, we’re a family. What are our goals? What do we want to achieve with our financial life? And we’re all committed to that.” So, it really shouldn’t be an issue for one spouse who has higher income to cover off more of the expenses. That’s really the fair way to do it.

8 questions to ask about bankruptcy in a relationship.

1. Which spouse is responsible for the debt?

Tera:

Okay. Now some people may wonder about their spouse’s consumer proposal or bankruptcy and how it will affect them, or if their bankruptcy will affect their spouse or partner. Can you tell us what couples should know when one of them decides to declare bankruptcy, Michael?

Michael Comrie:

Yeah. So ultimately that’s going to break down along the lines of who’s responsible for the debt. So, if an individual partner is filing a consumer proposal or bankruptcy, and all of their debts are in their name and there’s no guarantors, or co-signing or co-liability or joint liability, then that individual’s bankruptcy will in no way impact their spouse because the debts are all in their name. It gets a little bit more tricky when there are joint liabilities, because the bankruptcy is only going to remove the liability for the individual. Who’s actually filing the bankruptcy? And then the other individual becomes responsible, not for 50 per cent of the debt, which is a common misconception, but for a hundred percent of that debt. Exactly. And so that individual…there should be discussion. Or that the individual who is joint on that debt, who’s not filing bankruptcy, should be aware that it will now become their responsibility to manage that debt in its entirety to avoid potential blow back on their credit, or legal recourse from the creditor upon default.

And, and so, it gets a little bit more complicated when you’re dealing with supplementary credit cards. In my personal experience, I’ve seen different situations. Generally speaking, the primary cardholder is responsible for all of the debt incurred on both cards. And if it’s not clear, a supplementary credit card is where you get a credit card and the lender will ask if you want to have a supplementary card issued to perhaps your spouse. So, in that case, the primary cardholder in my experience is always responsible for all of the debts incurred on both cards. Where it gets a little tricky is what degree or what amount of liability is associated with this supplementary credit card user, i.e., the spouse. And really that’s going to break down along what the terms of the agreement are. But I have seen it. I’ve literally read the agreement terms where the supplementary card holder is responsible for all of the debt or, and this is more common in my experience, they’re responsible potentially for the debt that they’ve incurred themselves while using that supplementary card. So that’s what you need to think about: what’s joint, what’s not.

2. Can debt collectors collect unpaid debt from a spouse?

Tera:

Now Jennifer, will debt collectors try to collect unpaid debt from a spouse?

Jennifer McCracken:

Well, if the spouse is a co-signer or has a supplementary card, then yes, there’s a risk that when somebody makes the proposal filing or the bankruptcy filing, they don’t have the credit or protection. So, the collector will pursue it. I always tell individuals, because sometimes they don’t know (because) we are away from going into the bank and writing out a credit application. Things are done online. A lot of times spouses are unclear. “I don’t think my wife is on that account, but what if she gets a phone call?” And so that’s where I give the advice. “Look, if there is a collection call and you yourself are uncertain as to whether or not it’s joint or there’s a supplemental card, then what you can do is ask it’s. The onus is on the lender to prove that you’re liable.

So, you can ask the debt collector, you can ask the lender to prove that you’re liable for it, to give you some documentary evidence that you’ve agreed to pay the debt. If they can’t produce it, then they should not be collecting against you. And there are provincial debt collection laws and regulatory bodies that inappropriate debt collection can be reported to. So, we would certainly give anybody that advice, that if they are getting collection calls, when they are not legally responsible to pay the debt, you do have recourse to address that situation.

3. Will my partner’s consumer proposal or bankruptcy affect my credit rating?

Tera:

And so, when it comes to a consumer proposal or a bankruptcy, how does it affect a partner, a spouse’s credit rating? So, I file for bankruptcy, will it affect my husband’s credit rating?

Jennifer McCracken:

So, there won’t be an impact to a spouse on their credit report because we’re all individual people. And in terms of credit reporting, there is the public record side of the reports, which reports judgements and consumer proposals and bankruptcies and other public record information. And then there’s the usage side. So any account that an individual has in their name, they have agreed as part of the lending agreement that the lender is allowed to report on the use of credit, what the credit limit is, how, how high the loan or the amounts have been advanced, and how regular and frequent the payments are being made.

So, if your spouse has filed a consumer proposal or bankruptcy, if you have joint debt, then yes, that account’s going to be reported and you are now responsible to make those payments. So as long as you keep those current, it’s not going to have any impact to your credit rating. Your spouse is filing. Just because you’re married, it is not going to show up on the public record side. There’s not going to be any note to say your husband or your wife filed a proposal. And now when you go into refinance your mortgage, all of a sudden you’ve got warts all over yourself. No, that’s not the case. You are individuals, you are treated separately. And really, it goes back to what Mike was talking about. What debts are joint and what happens after the filing, if there are joint debts?

4. Am I responsible for my ex-spouse’s debt?

Tera:

Okay. And Michael, I imagine when bankruptcy and divorce intersect, things get very complicated. Let’s talk about what impact bankruptcy could have on a divorce couple or a couple who is about to go through a divorce.

Michael Comrie:

Sure. So, it is often the case that when a couple is going through a formal divorce proceeding and there’s either a legal separation agreement or a court order, there might be some wording in there about who’s going to take over joint debts. And I would just caution, and I bring this up first because it’s the most common element that I discuss with individuals who are going through separation. Although you might have an agreement between yourselves that, “I’ll take over the joint debt and you don’t have to worry about that.” If the individual who’s agreed to do that, ultimately enters into a bankruptcy, the lender, unless they themselves have made arrangements to change the liability from the contractual point of view, are going to go after that ex-partner or ex-spouse, because the individual who has agreed to pay it is no longer paying it.

So just something to keep in mind is, that’s an agreement between you and your ex and the bank is not necessarily obliged to follow whatever agreement you’ve made. So, then we’re talking about, what are the complications, if you’re filing before or after? And primarily for me, when I’m discussing it with people, it breaks down along the lines of, how are assets treated, how our joint debts treated. And we won’t get too much into this I’m sure, but how equalization payments are treated. So general principle is, when you file for bankruptcy, your unexempt assets turn over to the trustee (or vest in the trustee) who then has a responsibility to realize on those. So, if you are entering into a bankruptcy before the divorce has finalized, then those assets immediately now vest in the trustee, which is going to impact what’s available through the divorce proceedings.

Whereas if the divorce proceedings have finalized in their entirety and assets have been transferred and it’s based on the formal agreement or court order, and there’s nothing fraudulent that’s taken place, then typically, those assets wouldn’t be available for distribution to the acts through the divorce proceeding. So, it really breaks down to what stage are you in. And if you filed beforehand, you’ve got to think about how the assets are going to be treated in the bankruptcy. And if you’re filing afterwards, you’re just looking at what were the conditions of the agreements and what assets went where. And again, as long as they weren’t transferred fraudulently, typically the trustee and the creditors won’t be able to go after those.

5. Can my ex-spouse and I file a joint consumer proposal or bankruptcy?

Tera:

And Jennifer can a divorced couple file a joint bankruptcy, even though they’re divorced?

Jennifer McCracken:

What we have to look out for joint filings is, the percentage of the commonality of the debt. So, I think it’s probably easier to do in a proposal as opposed to bankruptcy, just because in a proposal process, individuals maintain title and control of the assets. And when you file a proposal, you’re really just in a payment plan to discharge the debt. Whereas bankruptcy, as Mike was saying, does entail a little bit more scrutiny around assets and potentially a financial recovery from assets. So, if you have spouses that are in a divorce, or divorced, and the assets have been separated, they may not be operating as a household in the sense of their assets. So, a bankruptcy may not necessarily be appropriate to do as a joint filing, even if there’s enough of a commonality of debt, so it can be done.

But, really my advice on that would be, it would be prudent just to assess it on a case-by-case basis. And you can have spouses that are separated and they get along and they’re co-parenting effectively with their children. And maybe they’re still resolving some of the debt issues. And you can have spouses that are on very good terms, where they do want to work together with the trustee on a solution. And of course, that’s always a good thing to see because at the end of the day, discharging the debt and moving on from that issue is also going to help them move on separately in their lives. So, we certainly encourage folks to ask that question when they’re meeting with an LIT.

6. Will I lose alimony or child support payments if my spouse declares bankruptcy?

Tera:

Now can outstanding alimony or child support payments be discharged in a bankruptcy? Sorry, I should’ve said, Michael, do you want to take that one?

Michael Comrie:

Yeah, sure. So, typically speaking, there is a section of the Bankruptcy and Insolvency Act and it details the types of debts that will not be released by an order of discharge. Child support and alimony is on that list. So typically speaking, if you file bankruptcy and you have those amounts (child support and alimony) owing, you won’t be released from them. And then there’s also a discussion of how that ex-spouse who is owed the alimony or child support will participate in that bankruptcy as a creditor who will be entitled to any dividends that would be available for distribution. And then it gets even further complicated. If any alimony or child support is outstanding for the 12 months prior to the insolvency filing, it gets special treatment. And those claims get paid out ahead of the other unsecured, ordinary creditors. But typically speaking, when you are discharged from the bankruptcy, regardless of what that individual has received from the bankruptcy, you still owe all of your child support and all of your alimony. You have to pay that.

Jennifer McCracken:

One thing to keep in mind here is that, in B.C., where I practice, family law is a provincial statute. And family law provisions vary by province. And so you have two schemes in Canada, you have one where it’s division of property, and then you have the other which is called equalization. So, Ontario is an equalization province and B.C. is a division of property. One thing to be mindful of is, I do meet people who lived in Ontario (an equalization province), “I owe my ex $20,000.” And what is it? “Oh, it’s alimony.” But when you actually drill down, it could actually be an equalization payment where they’re making a payment in respect of family assets. And it’s not driven by an ongoing obligation for spousal support, which is overseen by SSAG (the Spousal Support Advisory Guidelines), which are a federal table.

And then we have a federal/provincial table for child support guidelines. So, when we talk about debt surviving, it is specific to spousal support and it is specific to child support. So, it is something worth drilling in a little more detail when we meet with people to say, “Okay, just to clarify, is this an equalization payment, or is this a spousal support or child support obligation?” Because the special treatment of course exists for the spousal and child, a lot of people say it should exist for equalization. That’s going to be subject to review at legislative reform, but as it stands now, it (equalization payment) is actually a dischargeable debt, no different than the credit card or the unsecured bank loan.

Tera:

And how does support or alimony payment affect surplus income? Is that different provincially or is that governed federally? Either one of you, sorry, again. I’m just throwing questions out on you guys. Who is going to answer?

Jennifer McCracken:

Well, I can say that. So, we have a prescribed calculation for surplus income payments that all trustees use across the country. They’re applicable to bankruptcy, but we also have regards to them when we calculate our proposal payments, when we have individuals filing consumer proposals. They do become extraordinary payments. Meaning before we look to any payment obligation to a bankruptcy, we will deduct the amount an individual is paying for child and spousal support because it is seen as extraordinary in nature. And that’s one that an individual would have to pay before we’d even contemplate whether or not they have a payment obligation to the bankruptcy. And so we factor that in, when we prepare budgets in our proposals and when we prepare our bankruptcy paperwork, we will always have regard to what amount an individual is paying monthly with respect to those obligations.

7. We plan to divorce. What could we do now to avoid money issues later?

Tera:

Now, Mike, what could couples do before a divorce to avoid all the financial problems that can come up down the road?

Michael Comrie:

Well, what’s common is, as I mentioned earlier, when you’re actually going through the divorce, you’re trying to set up who’s responsible for what debt. So, what you could look to do is you could approach a lender and look to set up two different arrangements. And ultimately, it’s going to depend on the debt itself. How much is owing, the accessibility of the lender and their willingness to work with you on this. But you can essentially look for them to set up two distinct loans or whatever it may be, to essentially separate the debt into two distinct debts. So, one of you is responsible for some portion and the other is responsible for the other portion. The other thing you can do, and I have seen it, although in my experience, it is rare, is you can ask the bank to remove one co-signer, in order to remove their joint liability.

And again, it’s really going to depend on the institution, the bank, the lender, whomever it may be, as to whether or not they’re open and willing to do that. But if that’s established ahead of time, then it’s easier to figure out when you finally get to divorce, who’s responsible for what, who’s going to handle what, because now the joint liability aspect of it has been dealt with beforehand. Other than that, just in general, you want to figure out who wants to hold onto what assets. And if you’re amicable or open to that, it’s really going to depend on if the couple is going through an adversarial separation or an amicable one. But I’ve been able to, at least as a minimum, start there. I’m sure Jennifer has other comments to make on that.

Jennifer McCracken:

Well, the other thing to keep in mind is that as part of a separation process, even when it’s done collaboratively, there is a requirement to do very detailed financial statements. And you may not think about your expenses in the way that these forms require it. Typically, you have to report your gross income and write down what your union dues are. And you’re looking at this thinking, well, I don’t even look at my budget this way. But the calculations are prescribed such the formulas require us to have regard to what is the gross income, what are certain deductions that we factor in before we measure a spousal support payment, or child support payment, what’s the taxable versus the net amount. And with respect to your expenses, you are going to have to report for instance, what you pay for dental. What are the special, extraordinary expenses?

And you may just think, “Well, we send this stuff off to the plan, it gets paid.” And, you’re going to be looking at your budget in a way and scrutinizing it, that is different than what you would typically do when you’re looking at your net income and what the outflows are. The calculations you’re doing with respect to child and spousal support are very different. And so be prepared to have all that financial information ready. Get out your tax returns. You are going to do a financial disclosure with each other, get out all the documents relating to your assets, the life insurance policies, what are the premiums? What are the payout values? All of these things are going to be looked at and considered, even if you’re doing it collaboratively.

So, if it is something where there’s an adversarial situation, it is even more important because you do need access to the records. So, you would want to have those records available before, for instance, you move out and you have difficulty now getting access to these things. So, it depends on the level of friction that’s involved. But you’re going to get asked questions. Just be prepared to do disclosures that are probably ones you’ve never done before. So just have as much information as you can.

Tera:

Would either of you recommend then, when you’re going, searching for a family lawyer to also maybe make an appointment with an LIT so that you can help them figure out what is the best option for them financially before they figure out what the best options are for them from a family law perspective or from a divorce perspective?

Michael Comrie:

I would recommend that, just because as we’ve sort of highlighted these two matters – bankruptcy law and family law – when they do collide, it’s fairly complicated, and they impact each other. So, if you’re going to be speaking to a lawyer about, “Here’s how we’re looking to have this separation or divorce play out,” it would be sensible to have a conversation with an LIT, to get a feeling for how the bankruptcy might influence the divorce or how the divorce might influence the bankruptcy. Because you’ll probably have a good idea at that point, what your own individual liabilities are anyway. Whatever happens with the divorce or separation, you may end up dealing with some debt difficulties or financial difficulties. And you may, one way or the other, need assistance from an LIT to restructure. And so, I think it makes sense to have that conversation up front. The trustees provide free advice on what all your options are. You’ll have that information so you can make informed decisions.

8. How can I avoid post-divorce debt problems?

Tera:

And which leads into the last question we have, which is, divorce is often on the list as one of the leading causes of bankruptcy. So why do people sometimes experience money problems after a marriage ends? Jennifer?

Jennifer McCracken:

Well, the legal costs can be substantial. And even when things are done collaboratively, there is still a cost to put together a parenting plan, for instance, if children are involved. And to have meetings and draw up a separation agreement, that’s also going to be costly. Now, if this is contentious and there are disputes around custody and other financial issues, that’s a huge impact to someone’s budget. And they really have to assess whether they have the funds to pursue that type of action. The other thing is that when folks separate, they have new financial costs to re-establish themselves. So, they have moving costs, their maybe their rent is higher.

They also are now living with a less amount of income. They may receive some spousal and child support, but maybe those payments aren’t coming or maybe they really need to be focused around, look, I’ve got to be able to survive off just one income. So that can certainly have an impact on people establishing themselves, and really working through a new budget. And then the other thing to think about is the debt piece. So, a lot of Canadians have debt and a lot of families have debt. And until you resolve the issues around your family law, matter whether it’s sale of assets to retire debt, you are still going to be carrying a level of debt that may be difficult for you to service before you’re able to get that paid and resolved through the family law matter. So that’s typically what I see in my practice anyway.

Tera:

And Mike, what can people do to avoid money problems after divorce?

Michael Comrie:

Yeah. So, that comes back to our earlier discussion about how open communication is between you and your now ex-spouse, such that you’re both starting over. So, you’re both going to be likely dealing with the same issues. Although, depending on income levels, one person’s difficulties might be greater than the others. A good place to start is, how is that individual dealing with suddenly having a double income or dual income reduced to a single income? Because unfortunately when you do see your income levels drop, it’s not like your expenses drop commensurately such that now, you are back to where you were (pre-divorce). It’s just, the expenses are typically a little bit more against your single income than they were against the dual income or the double income.

So, sharing advice on what the one person might be doing to handle that might benefit the other. And then just in general, as we’ve been stating along the way, which is I think a key takeaway, is open communication about the tricky elements of separation or divorce. So, child support or alimony, or for example, joint custody, and who’s going to have the children and how are we going to share these expenses. We often see situations where there’s even been some informal separation and one person’s agreed to pay this and the other person’s agreed to pay that. And if there’s not open communication, then that will break down fairly quickly. So, in general, just work with each other, and take advice and be open and communicate about the important elements of divorce or separation.

Tera:

And Jennifer, what are a few warning signs of debt? And when is the right time to speak to a trustee?

Jennifer McCracken:

Well, I think if you’re spending more than 20 per cent of your net income on making debt payments, that is a warning sign that you’re going to have cashflow issues. If there’s a change to your income, a change to your expenses, you may find there’s difficulty meeting your expenses. We have lots of resources on our website and we can have individuals go in and plug in how much they owe, what are the interest rates. And if you look at what is the timeframe for me to actually pay down my debt, can I afford that monthly payment? So that’s the other piece, is that what is the long-term prospect of me paying off the debt? Other warning signs include things like missed payments, accounts getting sent to collection, having to use high risk lenders, payday loans.

Then, that’s also a warning sign that you’d want to heed and pay attention to. And it’s certainly checking out our website, DebtSolutions.BDO.ca, you will find other tips on there about how to manage debt and pay down debt outside of an insolvency process. If you’re not having success with that, or you’ve been declined a consolidation loan, or there’s some other high-risk lender that just the process doesn’t seem attractive to you, obviously, we would encourage you to talk to an LIT, and get that advice before you obtain high interest loans and really find out what your options are.

Tera:

Well, thanks to both of you for sitting down with me today and talking about this and have a great afternoon.

Jennifer McCracken:

Yeah, you too.

Michael Comrie:

You as well.

Tera:

Thank you. I want to thank my guests. BDO Licensed Insolvency Trustees, Michael Comrie and Jennifer McCracken for joining me today. And for more Financial Wellness Podcasts, along with videos, debt management resources, tools, and expert advice, visit our website, DebtSolutions.BDO.ca. And remember, we are here to help you turn the page on debt.

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Date

March 10, 2021

How to handle financial challenges in a relationship

Couples don’t always talk about money. If you are the only one in the relationship tracking your spending, paying down a credit card balance or putting money aside for the mortgage down payment, it can seem like thankless work.

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