How to protect your money before a divorce

While marriage is supposed to last a lifetime, divorce rates remain high in Canada. Here are some of the best tips available to protect your money and assets before you're hit with divorce papers.

How to protect your money before a divorce

What to know about exclusions

Once you go through the divorce process, many of your assets will be reviewed and divided between you and your spouse. However, many items can be excluded from this list, such as life insurance money, gifts coming from a third party, inheritance money, and even money you've been awarded in a personal injury case. These are the big "excludable" items, and they're important for anyone considering a divorce. It's very important to keep these funds separate from your personal family property, or you may lose your exclusion.

In the Canadian court system, it's up to you to prove the exclusion, so there needs to be clear boundaries involved. Don't use inheritance or life insurance money with your net family property, such as purchasing a house that you will share with your spouse. Keep thorough financial records of these exclusions to prove the exclusion in court, otherwise you may not be able to protect yourself legally.

Life insurance

As mentioned, life insurance is excluded from the "net family property" calculation, too. Net family property basically indicates the sum of money and assets that will be divided at the point of a divorce. You can purchase life insurance on other people, family members, and even people you're involved in a business relationship with. Your spouse can't access these life insurance assets, and the funds will serve as exclusion for you when going through a divorce.

It's also your partner's home

When you and your partner join in marriage, the home that you share with your spouse is known as the matrimonial home. The value of this home is one item that is definitely not eligible for an exclusion, which means you will have to divide this property equally, regardless of your circumstances.

Unfortunately for many, this is the most important asset in their lives, and can be a painful financial hit during any divorce proceeding. It's also possible to have multiple matrimonial homes, such as a vacation home or cottage. Ultimately, it's important not to use excluded funds to purchase the matrimonial house if you can avoid it. Essentially, you will end up losing this money if you do.

A marriage contract/prenuptial agreement

The simple fact is that proper marriage pre-planning is one of the best ways to protect your money and assets before a divorce. If you have substantial assets or simply want to protect what you have, you and your spouse can decide exactly how assets will be divided during divorce through a marriage contract. This can sometimes put a strain on relationships, but it's something you should consider. It's important to have a qualified lawyer draw up any such plan; otherwise, your marriage contract may not hold up in court.

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