Financial Stresses of Divorce

The cost of living is a major concern for Albertans, which is made higher when a marriage breaks down. When a couple divorces, there are potentially substantial legal fees involved in resolving how to split assets and debt, and income by means of spousal and child support. Further, there are increased costs of taking care of two households and childcare with the same income you had when you lived together.

Divorce can be very emotionally draining, and in many cases financially draining as well. Here are some tips to keep in mind if you’re finding yourself going through a divorce.

Accumulating Legal Fees

According to a 2018 Canadian Lawyer Legal Fees Survey, in Western Canada legal fees alone are $1,000 to $1,200 for an uncontested divorce, while contested divorces could cost $10,001 to $12,500. The legal fees in Western Canada to prepare a separation agreement are $1,500 to $2,000, a child custody and support agreement will also cost between $1,500 and $2,000, a spousal support agreement is $800 to $1,600 and a division of property/assets agreement is $1,300 to $1,800. A trial up to two days costs just under $12,000 on average and a trial of up to five days could cost anywhere from $23,000 to $29,000 in the Western provinces.

When a court application is necessitated, a court can order that the party who lost the matter must pay the other party’s legal costs. However, in family law, the results of a court application or trial are often mixed and often neither of the parties emerges as a clear winner. For example, one parent may win custody of the children but the other may win on the amount of combined spousal and child support payable. As such the court may decline to order their party to pay the other’s legal costs.

In situations where the court finds one party to wholly win on the issues and awards costs against the unsuccessful party, then the costs that are set out in Schedule C to the Alberta Rules of Court usually cover a small portion of the winner’s total legal bill. For example, Schedule C provides a limit of recovery in uncontested matters (e.g., default judgment) to $300 – $800 plus disbursements. A contested application costs $500 – $1,500 plus disbursements. The winner of a half day Special Chambers application, where most contested interim custody applications are decided, would be entitled to $1,000 plus disbursements plus $500 for each additional half day. Costs are higher in a contested trial, which entails a pre-trial conference, trial preparation, and submission of a written argument, but they almost never cover the actual legal fees incurred. The client then faces a substantial balance of costs despite his or her success in court. This is not to mention the potential costs incurred to enforce a court order or to recover an unpaid cost order.

Potential Problems Couples Face When Dividing Assets

While Canadian divorce laws are governed by the federal Divorce Act, dividing assets is governed by each individual province. The court system strives to equally split assets that a couple earned collectively over the course of their marriage, but dividing assets is often a touchy issue when one person contributed more financially over the years and you have young children that you will like to see continue living in the matrimonial home.

Disputes Over Spousal and Child Support

Commonly, divorcing spouses earn unequal amounts and, as such, a separation or divorce will typically result in a period of spousal and child support, depending on the ages of the children, the length of the marriage, and your income differential, including if one spouse made career sacrifices to care for the children. Or, a person might need additional support because they can only work part-time. A judge will balance the need for support with the ability of the spouse to be self-sufficient.

If spousal support is paid as a result of a court order or signed separation agreement, then it is taxable to the recipient and deductible from the income of the payer. This is not the case for child support, which is not taxable or deductible for either party.

Additional complications arise with respect to how much each parent will pay for post-maturity support, when a child is no longer a minor but is unable to support him or herself while attending post-secondary school, especially when living away from home.

Adding in Financial Difficulty

If one or both parties are having financial problems, further issues will arise. Permission from a partner is not required in order to file for bankruptcy, but you two may be in a better position to assess the resulting debt after the issues of marital property and spousal/child support are dealt with. Creditors may ultimately go after a partner regardless as debts cannot be truly split in a divorce and the second party may ultimately file for bankruptcy too.

Assets like your home, pensions and RRSPs are usually protected in a bankruptcy or consumer proposal and legal fees resulting from divorce can be discharged, but creditors can potentially repossess any unsecured assets. Certain unsecured debts, such as child and spousal support, cannot be discharged as a result of filing for bankruptcy or a consumer proposal in Alberta.

Divorce – A Common Occurrence

Statistic Canada no longer tracks the divorce rate in Canada, but in its last record, in 2008, approximately 40 percent of marriages ended in divorce and the average length of marriages was less than 14 years. The divorce rate in Alberta was a little higher than the country average, at nearly 42 percent. Divorcing couples are on average close to their prime earning years, in their early to mid-40s. Families usually have some significant assets and relatively young children, both of which make financial decisions in divorce all that more challenging.

We Can Make a Difficult Situation a Little Easier

There are various options available for couples experiencing financial stress while undergoing divorce, not the least of which is caused by the change in their finances, management of shared debts, and division of assets. A Licensed Insolvency Trustee (LIT) at Faber offers a breadth of expertise, support and guidance, including help with debt consolidation loans, consumer proposals and bankruptcies in Alberta. Book a free and confidential consultation to find out more about your options for debt solutions. We have 16 locations in Alberta and have served individuals and families for over two decades. We are available to help you too, at 1.877.944.1177.