One for the money

For Megan*, having control over her money after her divorce brought some sense of relief. As the sole breadwinner near the end of her marriage, she says her biggest financial weakness was her ex, an excessive spender. “I’ve always paid off my credit card bills every month and put 10% of my pay in savings. While I was married, I was the squirrel storing all the nuts and he was taking them,” she explains. (*Megan’s name, along with others in this article marked with an asterisk, have been changed at their request.)

Today, Megan is autonomously managing her money. However, she’s facing new challenges while she juggles the cost of single motherhood because, as she’s discovering, solo parenting has a learning curve when it comes to achieving fiscal wellness. Enter Eva Sachs, a Certified Divorce Financial Analyst (CDFA). She specializes in helping moms who are navigating the expensive task of raising a family on their own. From finding money to pay spousal support to saving for a home, Sachs shares her valuable expertise with four moms—including Megan—to guide them through their their distinct financial dilemmas. 

Megan

Who: A high-earning working mom 

Custody: 50%

Her goal: “I want to stay in our marital home.”

Her story: Megan* wants to keep her current address so her toddler can feel secure at home. As the higher earner, she started renting out part of her home to help pay the mortgage and child support. Her alimony payments are to be determined and she admits the cost will be a hit to her monthly budget. 

Her dilemma: Should she raid her RRSP or get a home equity line of credit to help her pay the mortgage and support payments? 

The expert says: “If she digs into her RRSP, that money is added to her income which could come up at her next support review and affect the payments she’s making.” Sachs adds a home equity line of credit will effectively reduce her monthly mortgage payments and give her the money she needs to cover her growing costs. On the downside, she will likely be paying only the interest on her mortgage until she has more money to pay down the principal. 

Extra advice: “She should also know spousal support is tax deductible,” Sachs notes. However, Megan will only benefit from a tax break under certain circumstances (read more on this here) and her eligibility should be detailed in her separation agreement. If she qualifies, she can ask her employer to reduce the amount of taxes from her regular salary to see immediate tax savings and free up cash flow—without having to withdraw her RRSPs* or borrow against her home. There are a couple of hiccups: She may not see an annual tax refund (depending on her income, available deductibles and the amount of tax she did pay throughout the year) and Revenue Canada can take months to sign off on her request to her employer, so she’ll have to find money to manage her payments in the interim, such as a personal line of credit.

Alyssa

Who: A single mom by choice  

Custody: 100% 

Her goal: “Becoming financially literate and buying a home one day.”  

Her story: Alyssa Garrison embraced single motherhood from the get-go and became pregnant on her own. Having a baby was always a priority and her savings were earmarked for parenthood even before the 29-year-old made the decision to become a single mom. Her entrepreneurial spirit has graced her with a comfortable living to start a family. Her blog, Random Acts of Pastel, established her reputation as a notable social media influencer and over the years, it has evolved into a lifestyle brand and creative services agency. 

Alyssa diligently tucks away 25% of her earnings in a TFSA* and has no credit card debt, thanks to her exceptionally frugal lifestyle (her hacks include buying second-hand baby clothes and tailoring what she owns instead of splurging on a new wardrobe). Her money-saving mojo is part of a sustainable lifestyle that prioritizes minimalism, which, she says, also makes saving so much easier. She lives in a modest rental apartment in Toronto and in five years she would like to buy a home in the city or move back to Vancouver to be closer to her family.  

Her dilemma: How does she start maximizing her savings to support her goals as a solo-flying parent?  

The expert says: Get started with a financial planner instead of an investment advisor. “They can help her figure out a financial plan that prioritizes her savings into short-, medium- and long-term goals,” says Sachs. Alyssa should pick  a pro with a Certified Financial Planner (CFP) designation and consider a fee-based planner who offers “transparency, no hidden fees, and no bias due to conflicts of interest to sell a certain product line or company offering,” Sachs adds. When she finds a planner who fits her personality, she should ask about stashing her savings in a balanced portfolio with a reliable return that will help her afford a move or buy a home. In terms of investing and planning for retirement, the pro says she can learn about the ins and outs over time because right now she should prioritize how to use her savings to cover an RESP for her daughter plus an emergency fund and down payment, which can live together in a TFSA. When it comes to her home, she could choose to put her money in an RRSP instead from which she can borrow up to $35,000 as a first-time home buyer. “If her income is low, she may not get much tax relief from contributing to her RRSP. However, she can use any tax refund as an additional source of savings.”  

Extra advice: Sooner than later, Alyssa should determine how much house she can afford. “She can work with a mortgage broker to see what her price range is and find out how much she has to save and [earn] to qualify when she’s ready,” adds Sachs. Both Toronto and Vancouver are notorious for sky-high housing prices, so how much she can borrow will also determine where she can live. To stay within her budget, she may have to buy into a small but mighty condo or choose to live larger outside of city limits. 

Learn how BDO Debt Solutions can help*

Zoe

Who: A stay-at-home mom who’s looking for work

Custody: 100%

Her goal: “A fresh start: A new career, buying a home and going back to school.”

Her story: Zoe* had a busy freelance career in the arts which she dialled down and eventually stopped once her then-husband earned enough to be the family’s sole breadwinner. Now, she receives both child and spousal support, has no debt and sticks to her modest budget in a rental apartment. She’s only been separated for a couple of months and she’s trying to avoid spending her savings, which came from the sale of her matrimonial home. In time, she wants to fully reclaim her financial independence. 

Her dilemma: How does she make the most of her nest egg until she starts working? 

The expert says: “She has to understand her monthly shortfalls,” Sachs notes. If Zoe starts dipping into her nest egg to cover unplanned expenses, she may spend too much and not reach her goals of purchasing a new home and furthering her education. By protecting a dollar amount that covers the down payment and purchase costs such as land transfer taxes, legal fees and utilities, she’ll have what she needs to buy a home in the future. Asking a mortgage broker what she can afford will help her decide how much of her savings she shouldn’t touch. Until she starts earning a steady salary, those savings will work best for her in low-risk investments and a TFSA* that she can easily draw from for emergencies. 

Extra advice: Zoe should get into the habit of assessing her expenses after each review of her support payments because if she starts getting a paycheque or her ex-husband’s salary changes, payment amounts—and her available budget—will fluctuate. “She should also put aside money to pay for the extra tax related to her spousal support payments which are added to her income,” adds Sachs. To help offset the tax bill, she can consider contributing to an RRSP. 

Julia

Who: A work-from-home entrepreneur

Custody: 50%

Her goal: “To live close to my ex and show our daughters a positive relationship after divorce.” 

Her story: With a lot of trust, Julia* continues to share finances, expenses, credit cards and accounts with her ex, and they remain committed to helping each other reach their goals. While they were married, Julia worked for her former husband, helping to build his business, and since they separated three years ago, he has supported her while she went back to school and established a new career. They want to move forward with a healthy dose of respect for their children and each other.   

Her dilemma: How do they leverage their current properties—a marital home and an investment condo—to purchase two new homes as co-parents? 

The expert says: “If they want to purchase the homes together, things get complicated. They will have to document every possibility in regards to sharing the property.” Consider it an insurance policy that digs into the what-ifs just in case their effort to consciously uncouple gets derailed. Sachs adds there will be a laundry list of details to include in their agreement, from what percentage each co-parent owns of the two houses, what expenses each person pays, what happens if one of them wants to sell, conditions and allowable costs for renovations, and so much more. 

Extra advice: Buying the houses separately is less complex and won’t undermine their commitment to a shared and supportive life after divorce. Sachs explains a 50/50 split is the baseline when it comes to dividing the sale of a matrimonial home. If one spouse requires more money to purchase a house, they can adjust the split to 60/40 or whatever percentage suits their mutual needs. She adds that, with the couple’s degree of trust and goodwill, one spouse can also be a mortgage guarantor to help the other spouse afford to live close by. 

This article is presented by BDO Debt Solutions, as part of the guide: “The New Normal: Take control of your finances and debt.”

MORE ON SEPARATION, DIVORCE AND FINANCES:

• Tax basics for newly separated parents
• What is my spouse entitled to if we divorce?
• Estate planning 101 for parents
• Should partners combine their finances before marriage?