Sometimes in life and love, it's not happily ever after. Some estimate that roughly 40% of marriages in Canada end in divorce.
Interestingly, despite the pressures of professional obligations and long hours divorce among physicians isn't as common as you might think.
While Canadian physician-specific divorce statistics are sparse, a recent study in the BMJ surveying U.S. doctors indicated that physicians are less likely to be divorced than people in other occupations including lawyers, nurses and other health care professionals.
Statistics aside, few people come out of a divorce financially better off so it's important to approach divorce proceedings with a solid plan. Here are several issues you may want to consider.
Consult a financial advisor
It can be hard to make good financial decisions when you're facing marital breakdown, but divorce can have a significant impact on your net worth. A financial advisor is a valuable ally, and can help you navigate each stage of the divorce process.
Your advisor will likely work through a checklist which includes assessing your financial situation and making decisions about how to divide assets.
Questions might include:
• What should we do about our primary residence?
• Can I survive financially on my own?
• How will my taxes be impacted?
• How can we ensure our children will be financially cared for and protected?
Your advisor can also collaborate with other professionals who may be supporting you – such as an accountant or a lawyer – to ensure you receive consistent advice and that your interests are protected.
Getting the right advice can help reduce stress and ensure you're on solid financial ground once this significant life transition is finalized. Talk to your MD Advisor* and get the answers you need.
Valuate your medical professional corporation
If you are incorporated, estimating the value of your medical practice in a divorce is probably the single most critical financial issue. Business valuations can be subjective and depend on different factors.
There are two general approaches to determining the value of a practice. The first looks at what the business is worth now, and the second considers its future income-earning capacity.
Chances are you'll have to value the shares of your medical professional corporation, factoring in the assets, liabilities and goodwill of the practice. The value may be used to determine equalization of assets or spousal and child support amounts.
What if you're both physician shareholders in one medical professional corporation? You may have a shareholder agreement that sets out the next steps, so start there. Aspects that may need to be addressed include:
- who retains ownership
- whether the corporation will be renamed
- whether the exiting physician will create a new medical professional corporation
Make decisions about the future of the family home
Under Canadian law, the value of any property acquired during your marriage and that you still have when you separate must be divided equally among spouses. If you brought property into the marriage, it's yours to keep — but any increase in the value during the marriage must be shared.
The exception to this is the family home. When a married couple divorces, each spouse has an equal right to stay in the matrimonial home. Unless you have a court order, you cannot sell, rent or mortgage the home without the agreement of both spouses.
If you both agree to sell the home and divide the money equally be sure to consider the costs involved, including the prepayment penalty – which could run into the thousands – if you break the mortgage.
If you choose to stay in the family home, you'll need to buy out your partner. You may need to refinance your mortgage to pay your ex-spouse a lump sum. Your lender will also require that you requalify for a mortgage on your own. Maintaining a house on your own is more costly than sharing; work with your MD Advisor to ensure your budget will allow for these increased costs.
Establish child custody arrangements, support
Children are often the biggest concern for divorcing couples — and understandably so. Making decisions about children is easiest when you are parting ways amicably and have a co-parenting relationship focused on what's best for them.
Parenting arrangement: A parenting arrangement sets out considerations such as where children will live, how much time they’ll spend with each parent and who is responsible for making decisions about them. Parenting arrangements can be informal, part of a separation agreement, or ordered by a court.
Child support: Once you've determined how your children will be cared for, you'll need to calculate child support. Canada's child support law dictates that “all children should continue to benefit from the financial means of both parents as if they were still together." Child support payments are calculated based on four factors:
- residency arrangements of the children
- number of children involved
- province or territory in which you live
The amount required to pay for child support is calculated based on Canadian government tables that consider a parent's gross income, the cost of living, provincial income tax and average national amounts that families spend to care for children. A child support agreement can be created mutually by two parents, or via a legal ruling set by a court judge.
Evaluate debts, including medical school loans
Physicians are more likely than other professionals to have higher amounts of debt. It's not uncommon for practising physicians to have accumulated more than $200,000 in debt — and your spouse may have their own loans to pay off as well.
Responsibility for loan payment will depend on whether you took out these loans during the marriage or before, and whether you took out a joint consolidation loan. Also, be sure to advise your payment services of the change in your marital status.
Revise your will and power of attorney
Revising your estate plan should be a top priority, particularly updating your beneficiaries.
Update your executor and power of attorney. If the executor of your will or the person appointed to be your attorney for property and for personal care was your spouse, you may wish to appoint another person in their place.1
The executor and the named attorneys under power of attorney documents don't have to be the same person. However, make sure they are trustworthy. They will be responsible for carrying out your last wishes — or perhaps managing your financial affairs on your behalf, or deciding what care you will or will not receive. We can help you choose the right people for these roles or we can act on your behalf (but only as your attorney for property).
Update your estate plan. It will also be important to review your estate plan to ensure that upon your death your assets will be distributed according to your wishes, and that your estate will pay as little tax as possible. We can advise you on when and how you should transfer assets to minimize taxes.
Re-evaluate your insurance needs
During your relationship, you probably assessed your insurance needs based on both of your incomes. For example, you may have known you could rely on your spouse's income if you were suddenly unable to work, and so you didn't have disability insurance. Or you may have purchased a life insurance policy for the benefit of your former spouse.
Considering your new status, assess your needs and make the necessary changes to your life and disability insurance. Review all your insurance policies, and designate new beneficiaries if necessary. You may also want to change your coverage or purchase new coverage as needed.
READ MORE: Life insurance 101 for Canadian physicians
Consider the tax impact of divorce
The tax consequences of a separation or divorce are not always immediately apparent but they can have a big impact on your wallet.
Division of property. When dividing property, it's important to determine who will keep what and to make the right tax choices. Let's take the example of Dr. Amari Campbell and her husband, Joseph, who separate. They agree to let Joseph keep the family home and transfer his RRSP to Amari as compensation.
This transfer, commonly known as a spousal rollover, has no immediate tax impact at first glance. But Amari will have to pay tax when she withdraws funds from the RRSP, while Joseph will not have to pay tax on the capital gain when he sells the house if he has designated it as his principal residence.
Child support. Child support payments to cover children's needs are not deductible from the payer's income and are not added to the recipient's income.
These are only some of the complex issues to consider as you update your investment, estate and insurance strategies. Work with a team of professionals who can help you make the most of a difficult situation.
Common-law? Know your rights after a breakup
According to the 2021 Canadian census, Canada has the highest share of common-law couples (23%) among G7 countries – with 43% of couples in Quebec living common-law.
The Canadian government defines a common-law relationship as two people who have lived together in a committed, conjugal relationship for at least one year. However, laws governing this type of partnership differ across the country in terms of the time partners must cohabitate before they are considered common law and what partners are entitled to in the event of a breakup.
In Ontario, for example, the provisions in Ontario's Family Law Act that relate to how property is divided apply only to married couples, not to common-law couples. And in Quebec, individuals in these unions don't automatically get the same rights as married couples do when the relationship dissolves.
The bottom line: Understand what a common-law relationship means in your province or territory, and work with a lawyer to learn what the implications are for you and your family should you choose to end your partnership.
Focus on self-care
Because they are used to putting the needs of others before their own, physicians don't always take the time they need to emotionally process a divorce. Allow yourself time to grieve, focus on your mental and physical health and lean on your support network of friends and family. Taking the time to prioritize yourself may allow you to come out stronger and better for it.
Reassess your goals
A divorce will affect all parts of your life. You'll need to reconsider both financial and personal goals.
Financial goals. Given your altered income, you may find that your financial goals are no longer within your reach and that you need to live on a tighter budget — such as, for example, living like a resident for a few years. But you may also have less debt because you sold off the common assets and opted for a more frugal lifestyle until you get back on your feet.
Personal goals. Once the storm has passed, take time to refocus on your personal goals. While you won't have to give up on retirement dreams entirely, you may need to rethink your plan to account for what your sources of income will be when you retire.
Your MD Advisor can help you create a new financial plan to get back on your feet and keep moving forward.
1 An “executor" is called a “liquidator" in the province of Quebec and an “estate trustee" in the province of Ontario. In the province of Quebec, a “power of attorney" is called a “procuration" or a “mandate."
* MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.
The above information should not be construed as offering specific financial, investment, foreign or domestic taxation, legal, accounting or similar professional advice nor is it intended to replace the advice of independent tax, accounting or legal professionals.