Break Up Vs. Divorce – Financial Implications

There’s an old saying, what’s mine is yours, what’s yours is mine. Well, in the case of a separation, this may be the best or worst thing that ever happened to you.

The laws governing common-law break ups are not even close to being similar as divorce. The ring matters…… big time.  I’m going to walk you through some of the major differences between common law and marriage in Canada if your love turns sour.

1. Division of Assets. Upon a marriage ending, there is an automatic right to equalize family property acquired during the marriage. So, the spouse with more money will have to pay the spouse with less money, no matter what. If you are in a common law relationship, however, you don’t have that right or obligation. After a break up, if you felt that you were owed assets from your partner, you have to take legal action and make an “unjust enrichment” claim. In other words, you have to hire lawyers and show that your common law partner was unjustly enriched at your financial expense over the years. This can be very costly and take a long time.

In common law, no matter how long you’ve lived together, you aren’t entitled to half the assets upon separation. In marriage, no matter how much harder you worked, you’ll have to pay out to the other partner.

2. Staying in Your House. Upon a marriage ending, there is an automatic right to stay in the matrimonial home, even if it is not in your name and the decision of who keeps the home remains with the partners. In a common law relationship, if your name is not on the deed, you could simply come home one day and find yourself locked out no matter how much you’ve financially contributed to the home.

3. Spousal Support. If you are married, you have an automatic right to receive or obligation to pay spousal support upon separation. If you are living in a common law relationship, you don’t have rights to spousal support until you have lived together for three years.

Furthermore, if you were married, you always have the right to apply for spousal support, no matter how long has passed since you separated. If you were in a common law relationship, you need to ensure that you apply for spousal support within 2 years of separation or you get nothing.

4. What happens without a Will? If you are married, and your partner passes away without a will, you automatically receive a share of your partner’s estate. If you were in a common law relationship in Canada, you have no right to get anything. Instead, you would have to go through the unjust enrichment claim against your partner’s estate.

There is one aspect where the rules of common law break ups and divorces are the same. Children.

When a couple, married or living together, has kids, the rules for child support, custody and adoption are the same.

WATCH MONEY AWESOMENESS HERE

 

Couples Banking Plan

Did you know that couples who bicker about money once a week are 30% more likely to end in divorce?
When it comes to matters of the heart… money definitely matters.

When couples fight about money, it’s never fun for anyone involved. Most times, it’s just a simple matter of banking.

WATCH BELOW

Rent Vs. Own

Rent. People say it like it’s a dirty word but it doesn’t have to be that way—especially in today’s economy.

There’s no doubt about it, purchasing a home gives you equity. Equity is good.

In theory, it’s great to save up a 20% down payment and buy a lovely home that your monthly cash flow can sustain. Over time, you easily pay off your mortgage as the value of your property goes up with lots of income left each month to save for your liquid retirement assets. In retirement, you’ll live mortgage-free while sitting on large investment portfolios to fund your daily needs.

Sounds brilliant, right? Well, in a perfect world it is!

But the world isn’t perfect. The cost of living is rising, wages are stagnating, and housing prices in the GTA are climbing steadily.

It’s time to face facts: most of us can’t afford to buy a home, and may never be able to.

I see many first time home buyers with only 5% for a down payment, a $300,000 mortgage, and a monthly income that cannot sustain the costs. Young couples get stuck with 80%+ of their after-tax paycheck tied up in housing costs because they bought a house they simply can’t afford.

Just because the anticipated mortgage payment is the same amount you pay in rent does not mean you can afford the house. There are mortgage payments, condo fees, property taxes, insurance, phone bills and utilities, not to mention other costs of living like transportation, weekly groceries, and any other monthly debt payments.

It adds up. Houses eat money.

The consequence? House poor young people with no money left over for any fun, regular life expenses, and long-term or emergency savings. All the money is spent before it even hits their checking accounts.

As a home owner, if something breaks – it’s on you to fix it. When the roof leaks, or the basement floods, it’s 100% your cost. No landlords. With no emergency savings fund, home repair and maintenance expenses go straight onto credit cards and home equity lines of credit and debt starts to rise. Daily living expenses such as food and entertainment go directly on credit as well—and are never paid off. Month after month. Year after year.

You might think that even though you can’t afford the house now, your income will go up over time. This is probably true – but so will the cost of living. So, unless you’re counting on major income adjustments your wages will rise with inflation, just like your utilities, property taxes and fees. If this is the case, your income may rise, but you will always be spending 80% of your income in bills.

When you buy a home that your monthly cash flow cannot sustain, you run the risk of not being able to save for retirement and worse – accumulating tens-of-thousands in consumer debt. After a lifetime of this, you could end up in retirement with a house that still isn’t paid off and no savings portfolio.

New School Advice

Buying is great, but wait until you can actually afford it. Ideally, your new home would leave all of your monthly fixed bills around 50% – 60% of your after tax income, leaving 30% for life and at least 10% – 20% for savings.

Until then, or if you don’t think that day will ever come, rent proudly – but be smart about it. Rent is actually a smart financial choice, but only if you take advantage of the fact that you don’t have to do renovations, repairs, maintenance, or taxes. SAVE THE MONEY

Rent Rules

1. If you rent, keep your total monthly fixed costs at 50% of your after-tax income.

2. Ensure you are able to save 20% each month for your retirement.

3. DO NOT spiral into consumer debt.

ADVICE FOR HOUSING

Ideal: Buy a house with monthly fixed costs at 50% – save 20%

Middle: Rent and keep monthly fixed costs at 50% – save 20%

Not good: Buy house with fixed costs higher than 70% – unable to save

Worst: Rent over lifetime with fixed costs > than 50% and unable to save 20%

WATCH MONEY AWESOMENESS HERE

The Barter Budget

Guest Post for Swapsity.ca

I spent a year living without money. I saved up enough for rent and my cell phone bill for the year but had to barter for everything else. Spending a year living on the barter system forced me to get out there and put the collaborative consumption model to the test. Can you really live without money? While I don’t think an entirely barter economy is ideal, neither is an entirely cash-based one.

As a financial advisor, I believe that everyone should aim to barter for the monetary equivalent of 5% of their after tax income each month.

A sustainable financial budget is made up of three major categories: 50% of your after tax income for fixed expenses, like housing, utilities, minimum payments; 20% for savings; and 30% for discretionary expenses. Discretionary expenses are everything you spend your money on besides bills, things like clothes, movies, concerts, art, beauty care, and fitness. These goods and services are extremely easy to barter for and a great place to bring barter into your life.

As gas and housing costs rise, it’s hard to keep fixed costs at only 50%. Barter is the perfect way to correct for this. If you make a conscious effort to barter at least 5% of your after tax income, you can still maintain your standard of living and keep spending off credit cards.

To implement this strategy:

  1. Make a list of all your monthly discretionary expenses.
  2. Highlight the ones you can barter for quite easily.
  3. Choose enough barter-friendly expenses that add up to 5% of your after tax income.
  4. Actively attempt to barter for them instead of spending cash.

For example: a person makes $40,000/year, which is $2500/month after tax. Their monthly condo fees just went up by $125/month, pushing their fixed costs from $1250/month to $1375/month, 50% to 55%. This increase in fixed costs puts pressure on their ability to save 20% or enjoy the 30%.

In the mixed barter/cash economy, rising fixed costs are not as scary. If this person barters the monetary equivalent of 5%, or $125/month, their life utility remains the same. This could be done by bartering for any regular expenses, including haircuts, clothing, aesthetics, and computer repairs.

Now this person will have 55% fixed costs, 20% savings, 25% discretionary expenses and 5% barter. They keep the same standard of living and savings even with the rise in bills.

Taking the idea one step further, if fixed costs are under control at 50% and you still barter for 5%, you can save more or spend more depending on your goals.

At 5%/month, $125, that would be $1500/year in savings — sounds pretty great to me.

Bartering helps you save more and spend less.

It’s financially smart to barter!

Bay Street to Bohemian

The Barter Babes Project is complete:

Help 300 women – check

In one year – check

Live on $35/week – …….not so much

Well, the dust has settled. The party is done. I had my last Barter Babe session at Starbucks. My one year, leap-of-faith project is over.

The final count is 310 women! Pretty incredible! I’m so proud, but the ending is bitter sweet.

What’s next?

Wow. What an intimidating and terrifying question.

Even though the project was a huge leap of faith, and scared me to death half the time, it still offered some sort of protection. Protection against the need to make “real life” decisions. Protection against financial reality. Protection against having to earn a living….

While I was in the thick of it, I was constantly building something, pushing and pushing, dreaming, thinking. Now that it’s over, technically I’m just an unemployed financial advisor. Hahahaha (don’t worry, I won’t burn my bra)

These thoughts are starting to be all-consuming. I’m no longer meeting with Barter Babes, doing analysis and write ups for hours, interviews, media – the project! Now, I have to face the “what’s next?” question and actually have an answer.

Well, I’m going to try to make a go at it!

I think I’m unemployable now, after being an “entrepreneur” – who doesn’t make money – for over a year. I enjoy working like a mad scientist, eating cereal right from the box, in bed, as I obsess over my to do list. This is not socially acceptable behaviour in the work place.

So,  I’m writing a book. I’m doing financial talks, writing business plans for entrepreneurs and hopefully a TV show comes from all of this! Oh yes… for all of you who may have missed the Barter Babes 300 party, I’m waiting to hear back from a network to see if Barter Babes will be turned into a TV show!!!! FINGERS ARE SO CROSSED!

Either way, show or no show – I’m going to give entrepreneurship a go. My goal is to cobble together enough of an income from various sources of financial work that I can live, pay rent and continue to barter one-on-one financial sessions! That’s the ultimate goal.

I’ll continue to blog about my trials and tribulations throughout this process and keep you all up to date on the show. Ahhhhhhhhhhhhhhhhhhhhhhhhhhhhh! Even talking about it makes my legs shaky with excitement/anxiety.

So, here I am. A year later, unemployed, several thousand dollars in debt, 10…..okay 12 pounds heavier and I still feel like I won the lottery.

Was it all worth it?

Yes. Helllllllllls yes.

I’ve never felt so alive.  I’ve experienced my highest highs and my lowest lows – true happiness and true terror. I really found out what I was made of this year, and I like what I found out.

Thank you to everyone in the Barter Babes community – Barter Babes and readers for supporting me throughout the year. I’ve said this so many times, but without all of you, there would be no Barter Babes project. I would just be a sketchy financial advisor who quit her job for no reason!

Things I’ve learned

Everyone should take a leap of faith that scares the shit out of them at least once in their life

$35/week is not enough

We are all worth more than what is in our bank accounts.

 

When I quit my job, so many people asked “what are you thinking?”

Now I know, I was thinking that I wanted to take a chance. I wanted to find out what I’m made of. Most of all, I wanted to make a difference, and I think I did. 310 times.

So stay tuned Barter Babes community…..I’m not going anywhere

Until Next Time (which there will be)

Barter On Babes

xo

Shannon