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.

 

Economic Update Daydreaming

by | Oct 29, 2015 | Finances

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I recently went to the Economic Update that CPABC (that’s Chartered Professional Accountants of BC) puts on every year. I go every year as it is free professional development (well, almost free as it consumes my time) and I always think that I might learn something. This year I learned that the Economic Update works like a creativity hour for me.

This year the speaker went through his various charts on GDP, inflation and bank rates and gave his predictions. I am perhaps a bit of a cynic but are these economists ever able to predict anything? As he was going through his various charts he focused on the winter of 2014 where everything took a tumble due to bad weather, yet weather does not seem to be one of the factors when he made predictions for the upcoming years. Instead his predictions were based on all the old culprits: the state of the various world economies and the demand for the raw materials that Canada ships out.

After a while I tuned out. There were at least 100 slides of different charts predicting various things. After hearing that the Bank of Canada rate would likely remain unchanged, I sat back and began to daydream. After all, most of us middle class citizens are mainly concerned with knowing if our mortgage, line of credit or cost of doing business is going to change.  As the economist predicted the Bank of Canada rate will not change for a year, we can all get back to paying off those mortgages and loans while building our lives and businesses.

As my mind drifted, I started thinking about our new Liberal government. I hadn’t followed much of the Liberal election campaign, but I did want to see change in Ottawa so I was happy to see that change. After the election I started hearing and reading about the Liberal’s election platform and in particular, I heard that  Justin Trudeau is going to help Canada spend its way out of its economic doldrums by spending more money than is coming into the National Coffers. He is going to create a spending plan deficit for Canada… but just for a few years, because with that overspending, Canada is going to figure things out and build a new economy that is not just based on exporting natural resources. Canada is going to turn itself around and become a country whose economy is built on innovation and creativity.

I do agree that sometimes you have to spend money to create positive change.

I also know that sometimes spending your way out of a problem is just not an option. If Canada were like Greece, Canada could not improve its economy by spending more money to fix it. There would be no money to spend.

I think of individuals who find themselves in a job that just isn’t working for them or have been recently let go from a job that they have held for a long time.  If that person has the opportunity and flexibility to take time and train and financial reserves to allow that to happen then that person could find something far more sustainable and financially rewarding than the traditional job they recently held.

I recently taught the time value of money to a class of grade 4 children. I told them that if they started investing $200 per year today, they’d have a nice tidy of sum of money to finance their mid-life crisis. Now that got me dreaming – wouldn’t that be fantastic if everyone did this?

But this is not the case for many individuals these days. Many people have no cushion.

People who have dug themselves into a financial hole with no savings, emergency funds and who are living paycheque to paycheque, simply cannot afford to take risks to get themselves into a better situation.

I also think about the person that is stuck in an unhappy marriage or relationship. If that person has a financial cushion, they are much more likely to take steps to improve that relationship by spending money on counselling or by spending money on a divorce. Sad to say, but many people stay in an unhappy marriage because they cannot afford to fix it or to get a divorce.

So what can a financially stuck person (or country) do in the situation where they cannot spend their way out of the problem?

Well, in Greece they enforced austerity measures. That doesn’t seem to be working either. Why not?

I think the key word in the above sentence is “enforced.”

Before someone makes the decision to start looking at options to cut personal spending, that person needs to know what future benefit the current pain is going to generate. It is hard to live with austerity, but what helps is knowing that it is for a defined period of time and it is to build a hopeful future. A clear path and plan for the future is necessary so you are not just living on the cheap forever.  There must be a link between the current suffering you are going through and the future benefit so you are willing to continue that suffering.

Just like there has to be a clear path and plan for the spending that Canada will be doing. I would hope there is some sort of link between what the money is being spent on and how that will continue to benefit Canada in the long run. Where will that bridge we will be spending money on to build lead us to? Hopefully to a place that most of us want to go.

 

 

Is it Really Narcissism?

by | Sep 30, 2015 | Divorce

photo-1413742215432-db7ea02bd2dcWhen I realized my marriage was over, one of the first things I started thinking about was how my life was going to change and not only change, but change for the worse.  Everything was going to be harder. I was becoming a single parent for half my waking hours and I was starting that journey with drastically reduced financial circumstances. These thoughts were part of the reason why I had tried to make my marriage work for so long – it just seemed easier to try to hold things together than to start again with an entirely different set of harder circumstances.

I was heading into my divorce when a huge amount of fear and uncertainty. I also felt like everyone else: my ex, my lawyer and the overarching rules of society that define how a divorce must happen, were now controlling my life. I had no say in how my life would be from here on in.

I began to operate on automatic pilot and tried to do everything as quickly as I could to get through the entire divorce process.

I drove myself through our divorce process without every taking a time out to figure out what I wanted. We used the Collaborative Approach to divorce and after five meetings we had a draft separation agreement and were essentially done. The reason it took five months was because we could only have one four way legal meeting per month.  We could not go any faster because it is challenging to book three to four hour sessions with four people (me, my ex and our respective lawyers) and their busy schedules. Our lawyers tried to get us to talk about what was important to us but I mostly thought to myself: “let’s get on with it!, can we stop talking about needs and values now?”

Then I entered a six week back to work program designed to help women find work. Again, I thought to myself as we worked through the first part of the program where we had to do endless self-analysis: “Can we get on with it? I need to write my resume.”

And then I was done. My divorce was finalized and I had my resume in hand.

But I was no closer to knowing what I wanted. I was still operating on fear and I still thought the best part of my life was behind me.

And nothing in my life appeared to be working. I was not getting a job. I was sending resumes off into what appeared to be the void as I heard absolutely nothing back from anyone. I was stuck,  I was scared and I was unhappy.

Things did not begin working in my life until I took time to figure out what was important to me. Yes, I went on that mid-life crisis soul searching bender because I got to a point where fear would not drive me forward anymore. I had gotten to the point where fear immobilized me.

Figuring out what drives you is a journey and it never stops but about six months into my quest to discover what would get me happy again, I had a list of my seven core values (I’m a type A accountant – I like my lists) that I posted up on my wall.

What I have discovered is that list is very handy in making decisions in my life. It is especially handy for making money decisions. My list of values helped me determine how I am going to earn my money and how I am going to spend it.

If you are finding it challenging to make decisions around money, the way out is to do some good old navel gazing. Because if you know yourself, it’s not hard to know when making a spending choice does not work for you and it becomes a no-brainer when it does. 

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.