Wife And Husband Splitting House And Car During Divorce ProcessAndrey Popov/iStockPhoto / Getty Images
If you think mixing love and money is difficult, try separating it. Couples across Canada are parting ways after pandemic lockdowns spent with their significant other revealed that perhaps their choice of life-long partner was not the best one. While the courts deal with the backlog of divorce applications, couples have to grapple with the financial consequences of dissolving their union.
Though divorce has always been a known wealth-killer, it has never quite wielded the level of financial destruction that it does now. Canada’s unaffordable housing market, coupled with runaway inflation, make a relationship breakdown a financial catastrophe, marked by a swift and severe downgrade in lifestyle for both parties.
In the past, one party in a divorcing couple typically kept the home and the other simply moved out. Now that situation is often impossible. A single income is rarely enough to take over the mortgage, let alone buy out an ex-partner’s equity in order to do so.
Yes, you absolutely need to talk about money with your significant other (before you move in)
For couples with children, one parent keeping the home is usually prioritized in order to minimize upheaval in the children’s lives. Now, sky-high home prices and astronomical rents can force one parent to relocate to a different neighbourhood or even a different city, creating even greater co-parenting challenges and long commutes to school and work.
Housing isn’t the only economic challenge facing the newly single. While some couples are able to get by with being a one-car household, going solo means you need to carry the costs of a vehicle alone. But there’s a continuing supply shortage of both new and used vehicles that makes finding a car more difficult. Furthermore, the ever-increasing price of gas means even after you buy a car, it will take up more of your budget than ever.
Food is one of the of larger bills that is both extremely sensitive to inflation and a much bigger expense as a single person – once you’re on your own, you lose the economies of scale when it comes to food and household items.
You also miss out on the shared labour for grocery shopping and meal preparation, leaving you with both more to do and less time to do it. Few things draw as much attention to how much time and money it takes to meet our basic needs as having to attend to them all by ourselves.
Don’t forget that now your cellphone bill is no longer on a shared plan. If you want cable TV, Netflix, or Amazon Prime, you can’t go halfsies on the bill. In fact, you don’t get to split the costs of anything anymore, whether that be appetizers or vacations. Singles pay a premium in a world designed for couples, and as a result, can’t afford to enjoy as much.
At this point, you might be thinking it’s preferable to stay in a relationship for purely economic reasons and you wouldn’t be the first. But there are levels of unhappiness within a romantic partnership that can make moving to a cramped apartment and axing your dining-out budget look like small sacrifices in the grand scheme of things.
That said, some of the financial anguish can be avoided simply by discussing “what if” before a break happens. The newly betrothed or soon-to-be cohabiting couple may find it unromantic to put together a contingency plan if things don’t work out, but it’s careless to share your entire life and six- or seven-figures in assets (plus any accompanying debt) with no roadmap of what to do if things go south.
In the event of a relationship breakdown, the courts will likely default to splitting the home 50/50, but this may not accurately reflect the contributions of each party. Couples should have frank discussions about who gets what, should the relationship break down, and this conversation should be revisited every few years as incomes, assets, and circumstances change. An agreement can be formalized in writing with a lawyer for a couple thousand dollars, which is a steal when you consider the tens or hundreds of thousands of dollars potentially on the line.
There is an additional layer of complexity to address if the Bank of Mom & Dad contributed to the down payment. Many parents are using their own home equity or taking from their child’s future inheritance in order to give kids a boost to enter the housing market.
But unless specified otherwise, that cash gift will be considered to belong equally to both members of the couple, which means half of it will leave with each partner. This doesn’t mean you shouldn’t use cash gifts toward home ownership, but it is important to be aware of the consequences of doing so should your romantic circumstances change.
While these discussions and documents can feel awkward, the discomfort of having them pales in comparison to that you will experience if the union doesn’t work out. We don’t typically exit relationships with the same benevolent generosity with which we entered them, which is why it’s preferable to make decisions about how to potentially divvy up assets before we find ourselves in the emotional throes of a breakup.
In this economy, you can’t afford not to.
Bridget Casey, MBA (Finance) is founder of Money After Graduation, a financial e-learning company. You can follow her on Instagram at @bridgiecasey and Twitter at @BridgieCasey.