IAFP Symposium: Blended families complicate planning

By Steven Lamb | September 24, 2010 | Last updated on September 24, 2010
3 min read

BANFF – The financial services industry is rife with legal pitfalls stemming from potential conflicts of interest, but not all of these involve the interests of the advisor. There is a very real possibility the conflict you face could be between two clients, as a marriage falls apart.

The good news is that there is a canary in the coalmine providing ample warning of the potential consequences of representing such diverging interests: the legal profession.

“Over the past 30 to 40 years, wills have become more complicated and its because our society has become more complicated,” said Pat Daunais, partner at Calgary’s Daunais Harms & Jones, speaking at the IAFP 2010 Symposium in Banff.

Those complications include marriages where one or both parties have been previously married; situations where they have children from a non-marriage previous relationship and children born to teenage parents who are now much older.

“It never would have dawned on me 30 years ago, to say to husband and wife ‘perhaps you should be seeking independent legal advice’,” she says. “We always thought that the husband’s and wife’s interests were the same.”

But in the last five years, there has been an increase in the number of lawyers who have been sued because they did not send the spouse out for independent legal advice.

“Immediately when you’re acting for a blended family, a red flag should go up,” she said. “Is there potential here for a conflict, or is there a conflict? And if so, what could happen 10 or 20 years down the road when one of the clients dies?”

Even in the most straightforward looking cases there can be grounds for a challenge. Take the example of a man and woman who have no previous marriages, or children from previous relationships. Typically, they might leave their entire estate to each other, with the survivor expected to look after their minor or adult children as they see fit.

“If you have handicapped children, they have the right to make a claim under the Dependent Relief Act if they are not adequately provided for in the will,” Daunais says. “Often the person acting as their guardian is the one receiving all of the estate.”

“Are there situations when you should be seeing clients separately and treating them as two separate clients?” she asked. “There is no question you should be doing that if you are not having the entire estate go from one spouse to the other. Down the road you can run into very difficult situations.”

Ensuring that all parties have independent legal and financial advice not only protects the practitioner, but it also protects the credibility of the client’s will.

Of course it is still appropriate to meet with and represent both partners, but the advisor may want to take a page from the lawyer’s playbook.

Daunais said it is best to put the potential conflict of interest on the table from the outset. She presents the couple with a one-page letter informing them that in the event of a marital breakdown, there will be a conflict of interest.

The spouses must sign this acknowledgement before Daunais proceeds, and this letter spells out who she will represent in the event of a marital breakdown. If the husband, for example, calls to change his will or insurance beneficiary, Daunais said the practitioner has an ethical obligation to let the wife know. As far as privacy is concerned, just be sure that is covered off by the conflict acknowledgement letter.

Steven Lamb