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Plan “D”: Your Post-Divorce Financial Plan

Many people think physicians are more likely to be divorced than people in other professions—perhaps due to physicians' long hours and stressful work.

However, recent data from the U.S. suggest that physicians have one of the lowest rates of divorce compared to other healthcare professionals and people in non-healthcare occupations. In Canada, the data are older but show similar findings. In the 2007 National Physician Survey, 4.1% of physicians said they were divorced compared to 8% of the Canadian population (age 15 and over) in the 2006 census

These findings may be reassuring for those who are entering medicine and wondering how it will affect their personal lives. But if you’ve recently been through a divorce, you know that splitting up is never easy. 

Financial planning may be the last thing on your mind, but it shouldn’t be. Very soon after a divorce, you’ll need to revisit your entire financial plan to protect your assets and make sure you’re still on track to reach your goals.

Here are some key points you’ll want to cover.

Cash flow and investments

If your divorce settlement included spousal or child support payments, your income has likely declined. Determine whether you’ll still be able to cover your expenses at your post-divorce income level. If not, you’ll need to adjust your spending and investment expectations to accommodate your new income. For example, you might choose to downsize your home or travel less.

Similarly, your divorce settlement might have included a division of assets, so some of your investments might now belong to your former spouse. Take stock of what’s left in your investment portfolio. Is it still enough to meet your current financial goals? If not, can you increase your investments to get back on track? Or will some of your goals have to change, at least for now?

Insurance coverage

When you were married, you likely had different insurance needs. For example, you might have had an insurance policy for your spouse, which you might no longer need.

You may have also had an extra income to fall back on in case you suddenly found yourself unable to work or that was factored in when assessing your insurance needs in case of premature death. Now you’re down to one income, and at the same time, your savings may have decreased following a division of assets. Check that you have enough income-replacement insurance to cover you in an emergency and reassess your life insurance needs given this material change to your situation.

Also, review each of your insurance policies and update your beneficiary information, if you haven’t already done so.

Retirement planning

If you and your former spouse had retirement plans, those plans may have changed. In addition, your retirement plan would have been based on the income needs for both spouses, as well as the income sources of both spouses. Assess your new goals, and think about whether your current financial plan and your post-divorce savings will help you reach those goals. 

Give some thought to your sources of retirement income, too. If there was a division of assets during your divorce, did it affect your company pension plan or Canada Pension Plan benefits? If so, take that into account as you assess your new retirement goals.

Estate planning

You’ve updated your beneficiary information on all of your insurance policies. Now do the same with your will. Also, if your spouse was named as your executor or power of attorney, you may want to change that.  

The same person doesn’t have to take on both roles, but make sure whomever you choose is trustworthy and reliable. They’ll be responsible for fulfilling any last wishes, and at some point, they may have to make financial and healthcare decisions on your behalf.

There’s one last thing to think about. If you have an RRSP in place, the value of your RRSP will be included in your income in the year of your death as the spousal rollover will not apply to defer taxes, which could result in a hefty tax bill for your estate. Check that you have sufficient life insurance and other assets in place to cover this tax bill.

Many parts of your financial plan may need to change following a divorce. To make sure you’re still on track to reach your financial goals, be sure to review your current plan and make adjustments as necessary.