Financial Planning for Separation: What You Need to Know in Alberta
Guest Post: By Faisal Karmali
Separation can turn your world upside down, but the right planning can keep you afloat.
With the emotional toll of compounding problems like money, property and your future at stake, it can all feel overwhelming.
I know because as a portfolio manager, I’ve seen firsthand how debilitating it can be for Albertans with no plan in place.
But with the right guidance, you can move forward with clarity and confidence.
Understanding Your Rights Under Alberta Law
I always tell anyone recently separated it’s crucial to know what your rights are.
Alberta’s Family Property Act, Family Law Act, and Adult Interdependent Partnership Act can ensure fairness for both married couples and adult interdependent partners (i.e., common-law relationships of three years or more, or those with children).
Family property - assets acquired during a relationship - are generally divided equally, no matter whose name is on the documents or who earned the income. However, this doesn't mean every asset gets literally divided in half. Often, the total value of family property is calculated and divided equally between spouses.
Some property, like assets owned before the relationship, gifts received from third parties, or inheritances may be exempt from division.
But like many things, it’s not always that straightforward.
Any increase in the value of that exempt property during the relationship could be subject to division in the divorce. For instance, if you owned a home worth $300,000 before marriage and it's now worth $500,000, that $200,000 appreciation could be considered family property.
Knowing your rights can build stability during an unstable time. If you’re unsure about how the law applies to your situation, seeking legal advice can help you feel more confident and informed.
Take Stock of Your Financial Reality
Before making any major decisions, you need a complete picture of your financial and legal situation. Once you understand your rights, I always advise my clients to create a comprehensive inventory of their assets and debts, including bank accounts, investments, and real estate. And don’t forget to look at business interests, pension benefits, stock options, or even valuable collections.
Gather documentation like recent statements for all accounts, tax returns for the past three years, property assessments, insurance policies, and employment benefit statements. Pay special attention to debts too, as those incurred during the relationship are typically shared equally, even if only one spouse's name is on the account.
Immediate Financial Priorities
Amid a separation, your immediate financial needs should be your top priority.
Making sure you have access to funds for essentials like housing, food and childcare can provide a sense of stability.
If you have joint accounts, either spouse can generally access these funds, but large unexplained withdrawals may be scrutinized later by courts. I recommend speaking with your lawyer and financial advisor about whether it makes sense to open individual accounts and redirect your income to them as soon as possible.
Joint credit products also require immediate attention. While you remain jointly liable for existing debt, you may want to prevent additional joint liability by closing accounts or removing your spouse's access. However, be mindful of the potential impact on your spouse’s access to necessary funds, as courts may view unilateral actions unfavorably.
Taking these steps can feel overwhelming, but they’re an important part of building a secure financial foundation.
Navigating Support Obligations
Child support can add a layer of complexity, but these measures are in place to ensure fairness and stability for everyone involved. Child support is determined under the Federal Child Support Guidelines and is based on the paying parent’s gross annual income and the number of children. These amounts are generally nonnegotiable, as they reflect the child’s right to financial support.
Spousal support is more nuanced and takes into account factors such as the length of your relationship, the age and health of both parties, childcare responsibilities, and each person's ability to become financially independent. While courts may reference the Spousal Support Advisory Guidelines, they are not mandatory rules but rather a starting point for negotiations.
Understanding the tax implications is crucial. Spousal support payments are tax-deductible for the payor and taxable income for the recipient, while there are no tax consequences for child support for either party. Talk to your tax professional about how support payments may affect your overall tax situation.
Strategic Property Division
Dividing family property can be emotional, but it’s an opportunity to make clear and logical decisions about your financial future. Equal division doesn't necessarily mean each asset necessarily gets split down the middle. Instead, you might keep certain assets while your spouse retains others of equivalent value.
This is where it’s important to be strategic, thinking carefully about your needs and priorities, and where legal advice can make a real difference.
For example, keeping the family home might seem appealing, but can you afford the mortgage, taxes, and maintenance on your post-separation income? Sometimes selling your home and splitting the proceeds can provide a fresh start.
Tax consequences can also affect the value of your assets. While RRSPs can typically be transferred between spouses on a taxfree basis during separation, withdrawing funds usually triggers immediate tax liabilities.
Planning Your Future
Pensions and retirement savings accumulated during your relationship are also subject to division in Alberta. This includes employer pension plans, RRSPs, RRIFs, TFSAs, and other retirement accounts.
For those already retired or nearing retirement, separation presents unique challenges. You may be living on fixed incomes, making it particularly difficult to absorb the financial impact of maintaining two separate households. If you're receiving CPP or OAS benefits, these may also be affected by your changed marital status and living arrangements.
Retirees going through separation often need to make difficult decisions about downsizing homes, relocating to more affordable areas, or even returning to part-time work to maintain financial stability. The division of retirement assets you’ve spent decades building can be especially challenging, but the focus should be on ensuring both parties have adequate financial resources.
Separation often means revisiting your entire retirement strategy. Reduced household income and the need to rebuild savings may require adjustments, such as delaying retirement or increasing your savings rate. A wealth manager can help you assess your options and update your plan accordingly.
Insurance and Benefits Transition
Review all insurance policies immediately and update beneficiaries where appropriate. You should also consider whether maintaining life insurance is necessary to secure ongoing support obligations, as courts may require it to protect dependent spouses or children.
If you receive health and dental benefits through your spouse's employer, it is important to understand when coverage will terminate and arrange alternatives. Disability insurance becomes particularly important as a single person since you may not have a spouse's income to rely on if you become unable to work.
Tax Planning Strategies
Separation significantly impacts your tax situation. You'll likely now be filing your taxes as a single person, potentially changing your tax brackets and eligibility for various credits and deductions.
The timing of your separation matters for tax purposes. Keep detailed records of separation-related expenses, as some legal and professional fees may be tax-deductible, particularly those related to establishing or collecting support payments.
Building Your New Budget
You’ll likely be living a different lifestyle after getting separated. So, you’ll need to create a realistic post-separation budget. Housing costs typically increase dramatically, and you might be paying or receiving support while dealing with new childcare arrangements.
Be honest about your lifestyle and the adjustments that may be required. It’s often unrealistic to maintain the same standard of living across two households on the income that once supported one. Focus on separating wants from needs and building financial stability, rather than trying to maintain old spending habits.
Include both immediate expenses and long-term financial goals in your planning too. You may need to rebuild emergency funds and adjust investment strategies based on your changed circumstances.
Professional Support Team
Navigating separation finances often requires professional expertise. At minimum, you'll need a family lawyer familiar with Alberta law and an accountant experienced with separation and divorce-related tax issues. Depending on your circumstances, you may also benefit from a financial planner who can help restructure your long-term strategy.
In more complex situations involving significant assets or business interests, specialists such as financial mediators, collaborative professionals, or business valuators may also be helpful. While the cost of these services can seem daunting, sound advice often saves money in the long run and helps avoid costly mistakes.
Moving Forward with Confidence
Separation is one of life’s most difficult transitions, but it’s also an opportunity to rebuild based on your vision of the future.
Financial planning during this time requires balancing immediate needs with long-term security.
While the process can feel overwhelming, taking things one step at a time and seeking support from qualified professionals can help you make informed decisions that protect your financial future. Remember, you don’t have to do this alone.
ABOUT THE AUTHOR:
Faisal Karmali is a senior wealth advisor with the Popowich Karmali Advisory Group, media personality, and business and market expert for QR Calgary and CTV. He has dedicated his career to helping people improve their financial security as they prepare for and live in retirement.
At Crossroads Law, we work closely with trusted financial professionals to ensure your legal strategy aligns with your broader financial goals. Whether you need guidance on property division, support arrangements, or protecting your longterm interests, our experienced family lawyers are here to help. Book a free consultation today.
