Getting Married is Easy. Getting Divorced? Not so Much

by | Dec 21, 2015 | Finances

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I’ve been getting some very strong reminders lately about the importance of planning. Very strong.

The main reminder I have been getting is that if you don’t plan adequately for certain stuff in life, things can go very wrong,  On the flip side, by doing just a little work upfront, life can go so much more smoothly.

One area where I don’t think enough planning is being done is when people decide to get married. Oh there is wedding planning happening, but it seems to me that there is not enough marriage planning happening.

What is the indication of this? Well, I think most people who have been through a divorce would agree with me. It is a walk in the park getting married compared to getting divorced. In fact divorce is so hard that some people simply stay in an unhappy marriage. These couples had no escape plan and so simply stay married.

A good analogy is comparing marriage and divorce to credit cards and credit card debt.

Credit cards are easy to get and can be very fun for people that haven’t thought about what happens when their credit card statement arrives in the mail. They get a card and they go shopping. Shopping is fun and exciting and it’s great for the first couple of months.  Then reality sets in.

“What? I have to pay this money back? Plus 20%? And if I don’t pay it back, I’m going to owe for 35 years?”

At this point the person in debt is having to do a lot of work to get out of the credit card debt predicament they find themselves in. It sure was easy getting that credit card and getting into debt. It’s not so easy to get out of it.

I find it’s the same with marriage. It sure is easy to get married. It costs $100 for a marriage license. Then all you have to do is find someone to act as a marriage commissioner (I think we paid ours $300) and say the magic words: you are now husband and wife, wife and wife, husband and husband (or whatever the magic words are in your situation).

And you are married.

I hope you did some planning together to figure out what your marriage would look like and even more planning to get back out of it if things start to go wrong.

Because it’s not so simple getting divorced.

Unfortunately you can’t just rip up that $100 marriage certificate.

You need a separation agreement and those can be hard to get. By the time you and your spouse have reached the stage where you have decided to get a divorce, there is a high probability that you are not getting along. It’s hard to come to agreement with someone you are not getting along with. So what to do? Well, you usually have to hire someone to help you such as a lawyer, mediator, counselor, financial planner, accountant, etc. These service providers generally charge considerably more than the marriage commissioner. They are more in the $300 – $500 an hour range and it can take considerable time for them to help you and your spouse come to an agreement.

You could also rely on the courts and simply file for divorce and let the cards fall where they may. You could represent yourself and leave it up to some judge that doesn’t know you decide your future. A risky proposition. Most people won’t chance it and again hire the lawyer to get them out of this predicament.  A court divorce generally costs thousands more than a mediated divorce or collaborative divorce.

How do you avoid all this? You plan. You create a marriage agreement between you and your future spouse with the help of a qualified professional before you get married.

Yes, it will cost money and it is not very romantic planning what to do in case of a future divorce.

Look at this way. It will not take nearly as many billable hours to come to a marriage agreement because at this point you and your spouse will be on the same page. After all you are about to be married!

Not on the same page? Having a hard time making that agreement? Then I have to ask, why are you getting married?

 

The Child Support Guidelines and How they Impact Parenting Decisions

by | Nov 12, 2015 | Divorce, Finances

photo-1446080501695-8e929f879f2bI recently did a set of spending plans for a separated couple. They are trying to sort out how they will share parenting arrangements in the future.  Their individual financial situations depend on what they decide. Are they going to share parenting, or will one parent be designated the Primary Caregiver?

In an ideal world, this couple would decide what is best for the children without thinking about how it will affect them financially, but often, people let their financial situation drive their decisions rather than vice versa.

How do different parenting arrangements affect the individual parent’s financial situation?

These are the basic rules:

Primary Caregiver Situation

The primary caregiver, the person who parents the children more than 60% of the time, receives child support from the other parent. The primary caregiver also gets all the tax credits and benefits related to the children.

Example 1:

Parent A is the primary caregiver of a two- and four-year-old child and earns $40,000 per year, while Parent B earns $60,000 annually. Parent B pays Parent A $900 a month in child support.

How does this look after taxes are considered?

Parent A pays about $6,000 in taxes (including EI and CPP).

Parent A is therefore left with $40,000 less $6,000 in taxes plus $10,800 (child support – non-taxable to Parent A)  plus $4,000 (Canada Child Benefit) for a grand total of $48,800 (after tax) per year.

Parent B pays about $14,000 in taxes (including EI and CPP – Parent B does not get any credits related to the children). 

Parent B is therefore left with $60,000 less $14,000 less $10,800 (child support) for a grand total of $35,200 after tax. That differs from Parent A, who started out with less.

As stated, Parent A is the primary caregiver of the children and so will, therefore, have much greater costs. That said, in the above situation, Parent B will also be on the hook for a greater percentage of child-related expenses, such as work-related child care. In this case, if Parent A earns $40,000 yearly with a two and four-year-old, there will likely be child care. Parent B will pay 60% of the childcare costs, and Parent A will pay 40%. Parent A gets to claim the childcare expense and Parent B does not.

Will Parent B understand that and give up almost $20,000 per year, or will Parent B decide equal parenting would be better?

Shared Parenting Situation

If the parents share parenting, they each must pay child support to the other parent. Essentially, it works like this:

Example 2:

Parent A earns $50,000, and Parent B earns $50,000.

Parent A has to pay $760 to Parent B for child support, and Parent B has to pay $760 to Parent A for child support. These two amounts offset each other. 

Example 3:

Parent A earns $40,000, and Parent B earns $60,000 (as above in example 1)

This time, Parent A pays a monthly amount of child support to Parent B, $600, and Parent B pays $900 to Parent A. These amounts are calculated based on the Federal Child Support Guidelines. Here is a handy calculator.

The child support guidelines are meant to equalize the children’s standard of living in the two different households (where they spend equal time). The calculation considers taxes as the recipient of the $300 receives the money tax-free, and the payer does not get a deduction.  Now, their respective incomes look like this:

Parent A – $40,000  less taxes of $6,000 or 14.7% plus $3,600 in child support plus $2,000 (Canada Child Benefit; it is shared) for a grand total of $38,000 (after tax) per year.

Parent B – $60,000 less taxes of $11,500 or 19.15% (this is lower than in example 1 as this time parent B gets to claim one child as a dependent)  less $3,600 in child support plus $2,000 Canada Child Benefit for a grand total of $46,900 (after tax) per year.

Parent A and B’s incomes are not completely equalized, but Parent B will end up paying more for things like medical and dental for the children as well as for extracurricular activities and other special expenses for the children. Parent B pays 60% of these expenses, and Parent A pays 40%.

If I were Parent B and were only concerned with money, I would choose example 3.

Do you see what the child support guidelines did?

The guidelines encouraged both parents to step up and be equal caregivers to their children—money talks.

In an ideal world, both parents would also step up and share parenting responsibilities, not just the money.

Parents starting out on the shared parenting path will struggle at first. One parent was likely the primary caregiver when the couple was married. That is usually the way it works. They will have to learn strategies for sharing parenting duties in the future.

 

The Good Divorce

by | Nov 5, 2015 | Divorce

dreamcatcherWhen I was freshly separated I was under terrible stress and in extreme emotional pain. My days were consumed with anger and sadness and I remember wondering if anything could be worse than going through a divorce. According to the Holmes and Rahe Stress Scale, death of a spouse tops out as the most stressful known event and this is followed by divorce.  However reading further, one can develop a stress score by adding up all the events that have happened to a person within the year. If you are getting divorced or have recently divorced then you can add up the following scores:

Divorce – 73

Separation – 65

Change in financial state  – 38

Change to different line of work (often comes with divorce) – 36

Trouble with in-laws  – 29

Change in living conditions – 25

Change in social activities – 18

Change in sleeping habits – 16

And I could go on as many other stressors seem to come with divorce. By now, your total stress score is up to 300. You are at risk of illness.  Wow – I’ve never added it up before, but that score speaks volumes.

As everyone told me, eventually I would get through it and life would get better and they were right. I did get through it and life is way better but it took considerable time for things to get better. I spent a good two to three years living with above average stress. Being a mom, I passed this stress along to my kids and I know that their dad also was in stress and did the same thing. This is not a good situation for anyone.

How could it be better?

This is something I’ve been trying to figure out.

One of my first ideas was that it should be a lot harder to get married and perhaps marriage should just be banned. Yeah – that’s not going to happen. I decided I didn’t want to go around being the dream killer. Now when people tell me that they are getting married, I just smile and say “congratulations.”

So instead I decided to be part of the movement to help people divorce better.  Maybe if more and more people start divorcing better, the stressors associated with divorce will start to go down.

How can you divorce better?

Do what it takes to learn how to do conflict the right way. Doing conflict the wrong way is likely what got you to divorce and continuing to do conflict the wrong way is what makes divorce so stressful.

This is not a quick fix.  After all, we have spent our entire lives learning how to do conflict our own way and we aren’t suddenly going to change just by deciding to change. It takes work and practice.

You will likely have to find a support system that is going to help you do conflict the right way. Don’t hire pitbull lawyers that love the court system and war. Hire people that will support both you and your ex as you figure out your more positive future now that you have decided to part ways. Hire people that are going to support you as you implement new tools in your life that allow you to thrive.

Spend your divorce dollars and energy wisely. Don’t spend your dollars on the type of support that is not going to help you move to a more positive life. Spend your time and energy on figuring out ways to live your life with hope.

 

How Spending Plans Decrease Money Anxiety

by | Sep 23, 2015 | Finances

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I hate spending money. My Scottish-Dutch genetic makeup combined with my upbringing in a Depression impacted family has turned me into a person that gets anxious any time I head to the cash register. You know how some people call shopping “retail therapy”? Well, shopping has never been that for me. The act of spending money starts an internal debate going in my head about if I need to spend that money or not. A few things I’ve noted about internal chatter: it slows down my decision making, it tends (under-exaggeration) towards the negative and it keeps me up at night.

Then I changed because I got tired of feeling guilty and anxious all the time. Spending money happens on an almost daily basis. I was beating myself up everyday! It was mentally exhausting and I couldn’t keep doing it.

How did I stop the guilt and anxiety I had around money? I didn’t do much; all I did was make a decision. What I decided to do was to start believing in my spending plan.

I’ve always been a bit of a spending plan fanatic. Each month, I add up everything I spent during the month and I add it to my money tracking spreadsheet which I have had going for the past five years. Then a couple of times a year, I look over what I’ve spent and I update my spending plan for the upcoming year. My monthly tracking is not as onerous as it sounds,  it takes me about two hours a month.

Even though I’ve always tracked my spending and I’ve created spending plans for years, I never really bought into the process. For one thing, I never went back to a prior year spending plan to to see if it bore any relation to my actual spending. Plus, I never critically looked at my plan to see if I was spending in areas that I wanted to spend in. I think I also never came close to spending what was in my plan. My spending plan was just a process I was doing that I thought I should do as an financially responsible person. I still agonized over every dime I spent and spending still made me feel horrible and guilty. All my spending plan was doing for me was consuming my time in creating it. I had this spending plan – but I was ignoring it and choosing to continue to feel bad when I spent money.

So I recognized that I no longer wanted to feel guilty and I also wanted my spending plan to be of use to me so I decided to start believing in it. How did I do this? I decided to analyze my spending plan and this is what I discovered.

My spending plan was based on my life and choices that I have been making for years. It was a financial reflection of my beliefs and values. After all, I do not spend money easily, so if it was spent and ended up in my tracking spreadsheet, I must have believed in it at least a little. My spending plan is therefore based on what I think is important to spend money on. I noticed that my spending stays fairly consistent year over year and also that I had built a cushion into my spending plan for unexpected expenses. Oh and another important part of my spending plan? I had enough money coming in to cover my spending going out. 

So then I realized that if an expense is in my spending plan, it is ok to spend money on that expense. I’m even allowed to spend on the unexpected because there is a cushion in my spending plan. All this spending is allowed without the guilt!

This change to believing in my spending plan is taking time and I’m not completely cured of my money guilt. I still don’t like spending money but that doesn’t hold me back in my decision making anymore or lead to days of anxiety (well mostly). For example, September is a fairly brutal month for expenses for me. It is when all my large business expenses come due and when children related expenses like after-school activities, hot lunches and school fees kick in. Before believing in my spending plan, I would have been in paroxysms over this spending. I would have felt horrible for days on end and would have questioned my decision to go into business for myself. I might even have decided to pull the plug on my business. I would have been more focussed on stopping the money bleeding than on driving my business and life forward.

This year when things came due, I felt a little icky and I know I still complained about the high cost of doing business as a sole proprietor,  but then I told myself, this is in my spending plan and therefore it is ok to spend. I am not going to make myself feel bad for buying professional liability insurance! 

Do you have money anxiety and fears? The best cure is to start tracking your spending and to build a spending plan. If you don’t have a plan, then every time you spend money you might be questioning it and causing yourself anxiety. With a plan, you too can move forward with your life with clarity and decisiveness.

 

 

My Partner is a Spender and I’m a Saver

by | Nov 6, 2014 | Finances

You are not alone and not surprisingly this is one of the leading causes of breakups and divorce. Many partnerships are comprised of these two opposing personalities which makes sense as opposites attract and when they get together each gets to see how the other half lives.  Living with a spender can be fantastic fun for the normally conservative saver. At the same time, the spender might like the practicality and planning ability of the saver and will feel taken care of and supported.

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Saver and Spender are as opposite on the financial personality spectrum as it gets. Saver thinks about the cost and the future before deciding to do anything and Spender is all about living in the now and seizing the day. This couple can make a powerful twosome. Spender opens Saver’s eyes about having some fun in life and letting go of worry and Saver helps Spender see that fun can still happen with planning. If there is discussion and openness about each other’s financial personality then this relationship can work with some pro-active planning and discussion.

Difficulties arise when Saver and Spender do not plan.  Saver and Spender can drift into a long term relationship without ever laying down the financial ground rules. Once Saver and Spender get married, have a child or even just move in together, things will get rocky and eventually implode if discussion and planning hasn’t taken place.

With no planning, Saver and Spender each think that the other person has bought into their way of doing things. Saver is thinking “Spender wants to live with me and my rules.  Spender has realised my way is best.” What’s Spender thinking? The exact opposite.   Saver and Spender are headed for relationship disaster.

Why? Spender keeps spending and Saver is doing all the saving for the household.  If this pattern continues, Saver will become resentful of Spender and when resentment kicks in, other behaviours are not far behind.  Saver is likely to start nagging Spender, specifically,  Saver will ramp up his/her efforts to prove to Spender that their household finances are a sinking ship and spends more time thinking and worrying about finances. All this worry on Saver’s part will cause Saver to nag Spender even more and now Spender is getting grumpy too!  Saver is constantly talking about money and trying to control Spender!

Spender and Saver live miserably ever after… until they can’t take it anymore and break up in a soul-destroying conflict laden implosion. If they don’t break up, then in all likelihood Spender will die first and Saver will discover that Spender spent all the savings. I bet you’ve heard that story before.

And this could all have been avoided with….

Financial Strategies for the Spender/Saver Relationship.